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Short-Run Actual and Least-Cost Productivities of Variable Inputs for the British Columbia Interior Softwood Lumber Industry

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A dynamic empirical cost structure analysis of the British Columbia interior softwood lumber industry was conducted using a variable cost approach. The analysis proceeds from the implicit assumption that the industry minimizes the variable cost of production in the short run, conditional on the quantity (level) of the quasifixed capital factor, rather than the usual assumption of total cost minimization. The introduction of interrelated factor demand via a simple partial adjustment model affords the measurement of productivity decline and higher costs due to incomplete implicit adjustment to least-cost levels when factor demand changes. The analysis also employs a somewhat restrictive method for accounting for the three major outputs of the industry in a single output model; however, this refinement does represent one prevelant production behaviour observed in the Canadian sawmilling industry as a whole. The resuls indicate that: (1) demand for variable inputs in the regional industry are interrelated; (2) the assumption of full and instantaneous adjustment in variable factor demands, as maintained in short-run static models, proved to be implausible; (3) small, but significant economies of scale and technology progress were present in the industry; (4) the technology was largely materials (wood) using and labor saving; (5) all input substitution possibilities were found to be substitutes on the least-cost expansion path except for materials and energy relationship, which were found to be weak complements; (6) labor productivity was positive on both the observed and least-cost productivity expansion paths, but the observed labor productivity was only 80% of the least-cost productivity; and (7), wood and energy productivities were declining on both the observed and least-cost paths, but at a slower rate on the least-cost productivity path. For. Sci. 34(1):88-101.

Keywords: Production structure; interrelated factor demand; variable cost function

Document Type: Journal Article

Affiliations: University of Toronto, Faculty of Forestry, Toronto, Ontario, Canada M5S 1A1

Publication date: March 1, 1988

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