What is the marginal rate of substitution?

The limit rate of substitution is a measure at which it is necessary to give up the consumption of one product to ensure another unit of another product and still gain the same level of satisfaction overall. From this point of view, this type of speed can be considered a compromise or a compromise that allows consumption to still satisfy the needs or wishes in an acceptable way, although accurate means to obtain this satisfaction have changed. Both companies and individuals use this particular economic strategy every day because they seek to maximize the return on the amount of income they have.

The key to understanding the marginal rate of substitution is to recognize that there is more than one way to satisfy needs and wishes. The decision to use at a given moment will vary. This means that the replacement of one product for one or more units of another product may be desirable at a certain time of the and settings, while another method of management of substitution will provide greater satisfaction at a different time.

One of the simplest ways to understand how the substitution rate is to consider buying at a fast food restaurant. The consumer has only so much money for food and must determine which combination of selections will provide the greatest satisfaction. On the one hand, the choice of a daily special, which includes a hamburger, fries and drink, would probably satisfy hunger. At the same time, the consumer may decide that the selection of several items from the discounted menu would also calm hunger and allow you to enjoy a wider selection of taste during the meal.

by giving up or replacing budget chicken offers, a small drink, a small order of onion rings, a small hamburger and a small salad for a daily special, consumer gives the pleasure of consuming a super large hamburger and a larger line of fries. At the same time, it gains the advantage of enjoying more diverse food without spending more money.

Another example of using the limit rateSubstitution in the same environment would be a decision between buying hamburgers or hot dogs. Assuming that two hot dogs stand just like one hamburger, the consumer can determine that the surrender of this hamburger to enjoy two hot dogs is an acceptable substitution. In both cases, satisfaction is derived, although the decision to go with two hot dogs can provide a little more satisfaction when it comes to consume more food without spending more money.

Companies often use the substitution limit rate when purchasing materials and stocks for business operations. By deciding, they can find out that it is possible to order a specified amount of giving, for example, a product and accept another product that is also considered desirable without costs. By giving up the purchase of another brand, the company is unable to take advantage of the benefits of a similar product, but also to obtain a little greater satisfaction from the acquisition of another desired item.