Elasticity+of+input+substitution

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. 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.