A Cost Function Approach to the Measurement of Elasticities of Factor Demand and Elasticities of Substitution

production function for estimating production parameters has several advantages: 1. It is not necessary to impose homogeneity of degree one on the production process to arrive at estimation equations. Cost functions are homogeneous in prices regardless of the homogeneity properties of the production function, because a doubling of all prices will double the costs but will not affect factor ratios.