A how much of the variation in stvc is explained by the

Santerre and Bennett (1992) estimated the STVC function for a sample of 55 for-profit hospitals
in Texas (t-statistics are in parentheses below the estimated coefficients). ln STVC ¼ 1.31 þ
0.47ln
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explained-by-the

Santerre and Bennett (1992) estimated the STVC function for a sample of 55 for-profit hospitals
in Texas (t-statistics are in parentheses below the estimated coefficients). ln STVC ¼ 1.31 þ
0.47ln q þ 0.80ln wþ 0.73ln QUALITY þ 0.11ln CASEMIX (0.69) (3.31) (4.42) (2.58)
(1.48) þ 0.29ln k þ 0.07ln DOC þ Other factors (3.16) (0.88) Adj. R2 ¼ 0.95 N ¼ 55
Where STVC ¼ short-run total variable cost, q ¼ a measure of output (total inpatient days),
w ¼ average wage rate or price of labor, QUALITY ¼ a measure of quality (number of
accreditations), CASEMIX ¼ an indicator of patient case-mix (number of services), k ¼ a
measure of capital (beds), and DOC ¼ number of admitting physicians. All variables are
expressed as natural logarithms (ln), so the estimated coefficients can be interpreted as
elasticity’s.
A. How much of the variation in STVC is explained by the explanatory variables? How do you
know that?
B. Which of the estimated coefficients are not statistically significant? Explain.
C. Does the estimated coefficient on output represent short-run economies or diseconomies of
scale? Explain.
D. What are the expected signs of the coefficient estimates on w, QUALITY, and CASEMIX?
Explain.
E. Provide an economic interpretation of the magnitude of the estimated coefficient on w.
F. What do the estimated coefficients on k and DOC suggest about the amount of capital and
physicians at the representative hospital?

A how much of the variation in stvc is explained by the

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