Production function with constant elasticity of substitution resources

Volodymyr Yankovyi
PhD in Economics, Associate Professor, Department of Economics and Management of National Economy, Odessa National Economic University, E-mail:vladimir_ya@ukr.net

Cite this article:

Yankovyi, V. (2015), Production function with constant elasticity of substitution resources. Ed.: M. Zveryakov (ed.-in-ch.) and others [Vyrobnycha funktsiia z postiinoiu elastychnistiu zamishchennia resursiv; za red. M. I. Zveriakova (gol. red.) ta in.], Socio-economic research bulletin (ISSN 2313-4569), Odessa National Economic University, Odessa, Issue 3, No. 58, pp. 228–234.

Abstract

The advantages of the production function with constant elasticity of substitution of resources (CES-function) and the possibility of its use in economic calculations are investigated in the article. The most important economic and mathematical parameters of CES-function and software its unknown factors evaluation are discussed. The optimal capital-maximizing output is determined. It is shown that in this case the marginal rate of substitution of resources equals to one. A new interpretation of it as an indicator of imbalances when investing in aggregate factors «capital» and «labor» is proposed. Deduced marginal rate of substitution of resources based on the optimal capital-labor ratio can be used as an important additional feature when applying the production function in the analysis output in the enterprises of Ukraine.

Keywords

CES-function; optimization; capital-labor ratio; marginal rate; substitution of the resources.

JEL classification: C210, C220, D240

UD classification: 330.356.7:64.04.3

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