Elasticity of Input Substitution
Inputs are any factors of production. It is possible to have many different inputs in a given medical situation. Nurses, medical equipment, and doctors can be considered inputs. The finished product, the output, would be a well person, having been cared for by the inputs.
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The elasticity of substitution is equal to the percentage change in the input ratio divided by the marginal rate of technical substitution.
0 £ s £ +∞

s = 0 means that the variable inputs cannot be substituted in production
s = ∞ means that the two variables are perfect substitutes for one another
In practice, it is more common for s to take on values between these two extremes, implying that limited substitution possibilities exist.

Questions:

1. If s = 0, the inputs can be substituted.

T/F

2. If s = ∞, the inputs cannot be easily substituted

T/F


Answers:

1. False

2. False


Santerre, Rexford E., and Stephen P. Neun. 4th ed. Crawfordsville: Thomson Southwestern, 2007. 170.