Substitution

Abstract

The firms of our models so far used only one input. Real production operations, however, use multiple inputs and are able to substitute, within limits, one input for another. This substitution in a competitive firm with two inputs, X and Y, is simulated in the models of this chapter. First, we identify the realm of minimum X-Y combinations that yield a given output. In the following section we identify the profit-maximizing output level together with the optimal combination of inputs.