An Estimation of Short-run and Long-run Demand Function of Production Factors In Iranian Industrial Sector

In this article a kind of cost function named Leontief’s Generalized(GL) cost function is used to estimate short-run and long-run cost function and demand functions of production inputs for Iranian industries. The results indicate that any increase in price of inputs due to their low price elasticity causes a sustainable increase in production cost. Relatively speaking, in long-run capital is least elastic production input whereas energy is the most elastic. Long-run estimated indirect elasticity show that energy input can be substituted by each other significantly, whereas the substitution for the other inputs(labour and capital) is not significant. Comparison analysis on estimated path of investment and it’s real time trend indicate that sample industries have had shown a mean of %25 gap from their desired situation.