Page 83 - Azerbaijan State University of Economics

Yadulla H. Hasanli: The evaluation of mutual substitution elasticity of capital and labour
factors by application of CES function for economy of Azerbaijan

We can see from (B2.1), the ratio of substitution between capital and

labour is equal to correlation between their changes in percentage and percentage

change of their limit products.

In other words, the ratio of substitution between capital and labour is equal

to correlation between their changes in percentage and percentage change of their

limit products.

The substitution elasticity shows the expanses (capital and labour) for

maintenance of the same level of output and called iso-quantum curve.

Now let show the vice-versa elasticity of the substitution:

(B2.2)

In general the differences between CES function and other production functions is

shown in the Table 1 below.

Table 1. Production functions and their parameters
Types of Production functions Y=F(K,L) –substitution -production Parameters
production elasticity elasticity
functions
1 2 3 4 5
Linear  1 and are limit products

for capital (K) and labour (L)
respectively .
Cobb- 1 A-scale factor, A>0, and
Douglas are elasticity factors for
capital (K) and labour (L)

82