Dynamic Analysis of Producer's Behavior in Using Factors on the Bases of Two Level CES Production Function with an Emphasize on Energy Consumption Pattern Improvement in Production and Employment

We expect energy use to decrease with any increase in its relative price through substitution of other goods for energy. In this process we attach importance to the extent and speed of substitution. In this study we estimate a dynamic and two level (nested) CES production function for manufacturing establishments with ten workers and more on the basis of observations for the period 1346-1386 (1967-2007). The results indicate that, capital and energy have a complementary relationship while labor has a substituting relationship with both capital and energy.The speed of labor substitution to energy (54%) is higher than it is with respect to capital (42%).On the other hand, studying the energy demand determints (energy price and production) in the period before and after the real price increase of various forms of energy, indicates increasing importance of price and reduced influence of production on demand for energy after energy prices were liberalized. We can thus conclude that the increase in energy prices is associated with increasing price and substitution elasticity in the long run, hence leading producers to be more flexible in substituting labor for energy, as a result increasing employment