Technical Rate Of Substitution

Topics: Computers

The very first computer was developed to accomplish difficult calculations mainly for military purposes, after a while due to technical progress computers became inseparable part of many industries. It eased difficult calculations and improved bureaucracy. More than 20 years ago home computers started to be sold in the market. It grew its popularity since then. New Information Technology industry was introduces. New multinational companies such as Apple, Microsoft, and IBM jumped into the world markets and from the very beginning of its existing had enormous profits.

But that is not surprising, because according to Eurostat website data since 2002 the percentage of the UK household that has access to computer grew from 58 to 71% in 2006.

That means that computer became an integral of nowadays life. No wonder that computers in the workplace had changed the marginal rate of technical substitution between high-tech and low- tech workers. Obviously, this issue is common for all three types of industries -industrial, agricultural and services-, but with a different level.

The other issue is how we define high tech worker. I reckon high tech worker is a person who has deep knowledge of at least one computer program. For sake of argument, the program could be Microsoft Word. Then examples for high- tech in all three sectors could be: in industrial sector scientists use computers for difficult calculations; in the service sector banks use computers to store data and to make different financial operations; it is a bit harder to find examples.

For the agricultural sector but it could be a farmer who wants to get a support from the EU Common Agricultural Policy and is writing a project on his PC.

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  Also, every industry needs low-tech workers for manual jobs such as building, warehouse work or even working in the farm. One firm produce one type of goods and pays wage to its employees who can spend their money for goods from other company that is how circle of flow works. Majority of firms track their performance. There is a clear reason for it – all companies want to improve their performance as more efficient means more profit.

To display performance firms use the production function which displays maximum level of output a firm could produce with level of inputs employed. Also the production function helps to indicate marginal and average products of labour or capital. But in this case, we need to hold one of the inputs constant. These measure help to indicate company the number of workers which is producing efficiently. This is the formula of the production function Q is quantity of output produced, L labour used and K is capital employed.

Because there are three variables I would have to use the three- dimension graph, but there is an economic trade-off which reduces complex of three dimension graph to two dimensions. We will use an isoquant curve which originally represents combination of labour and capital that can produce a given level of output (Besanko, 2005). Capital is usually defined as machines, robots and computers. I suppose it is easier to understand general model of production function where we have labour and capital. But short after I introduce production function where labour and capital will be changed two variables – high tech and low tech labour.

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Technical Rate Of Substitution. (2019, Dec 05). Retrieved from

Technical Rate Of Substitution
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