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Sawmills Are All A-Buzz About New Saws

Subject

Product and cost curves

Topic

Production and Costs

Key Words

Waste, timber, lumber, prices, competitive, machines, productivity, stock market, employment, living standards, technology

News Story

In the past, gently-curving logs posed problems for sawmills. The saws would waste a lot of timber when turning the logs into lumber. Nowadays, lasers scan a log and computers determine what combination of different-sized boards can be cut so as to minimize waste. The computers can also be programmed with the latest prices for boards of different sizes so that profit can be maximized. One sawmill produces the same amount of boards with 20 percent fewer workers and 12 percent fewer trees. This helps it be competitive in spite of having to spend millions of dollars each year on new machines and software upgrades.

The increase in productivity is helping the economy, the stock market, employment, and living standards to grow, while keeping prices down. Can this continue? The answer is yes. The newest technology can recognize rot, knots and other problems through ultrasound and X-rays.

(Updated June 1, 2000)

Questions

1.	Draw a diagram of a sawmill showing lumber output on the vertical axis and the amount of labor on the horizontal axis. Draw a total product curve assuming no lasers and computers are used.
	a) Show the effect of the use of lasers and computers on the total product curve.
	b) Illustrate how the new technology can produce the same amount of lumber with fewer workers.
2.	Now draw a diagram of the sawmill's total cost, total fixed cost, and total variable cost curves. The vertical and horizontal axes should reflect dollar costs and output respectively.
	a) Are the costs of lasers and computers fixed or variable? Why?
	b) Illustrate what happens when the sawmill buys lasers and computers.
	c) Is the cost of workers fixed or variable? Why?
	d) Illustrate what happens when the sawmill hires fewer workers to produce the same amount of lumber.
	e) Assuming that the sawmill makes economically-rational decisions, what happens to the total cost curve as a net result of all these changes in costs?
3.	Draw another diagram with dollars and output on the axis. However, this time draw the sawmill's average total cost and average variable cost curves. Draw a horizontal line showing the price of lumber.
	a) Show the effect on the cost curves of the use of lasers and computers and the reduced employment of workers that have led to higher productivity. Why did you shift the curves you did?
	b) Show what has happened to the amount of profit assuming stable prices.
	c) What effect on the price level does increased competition have? Why does it prompt sawmills to introduce new technology?

Source

George Hager, "Sawmill illustrates the buzz about productivity," USA Today, March 21, 2000.