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Implications of Factor Substitution, Economies of Scale, and Technological Change for the Cost of Production in the United States Pulp and Paper Industry

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A translog cost function was employed to investigate the implications of factor substitution, returns to scale, and biased technological progress for the cost of production in the aggregate United States pulp and paper industry over the period 1948-76. The results were consistent with cost minimizing behavior on the part of firms, and indicated that in the short run increases in the prices of capital, labor, or wood inputs would drive up commodity price. In contrast, expansion of aggregate output at constant factor prices would lead to declining average cost as a result of economies of scale. This feature of the production technology has led to a relatively concentrated industry that is characterized by very large plants. The main vehicle for achieving cost savings was through labor-saving technological progress. A wood-using bias was found, which suggests that current projections of future increases in the wood pulp/pulpwood ratio may lead to underestimates of future pulpwood requirements. Forest Sci. 31:803-812.

Keywords: Translog cost function

Document Type: Journal Article

Affiliations: Associate Professor, Department of Forestry, University of Wisconsin, Madison, WI 53706

Publication date: December 1, 1985

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