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UBC Theses and Dissertations

Analysis of resource allocation in the production of market eggs. Campbell, Robert Harold


Farmers are confronted continually with the necessity of revising and reorganizing their production plans in order to maximize the net returns from the available resources. This need arises from the dynamics of price and yield fluctuations, which can only be estimated within a range. If future changes in prices and yields could be predicted with absolute certainty, a single plan could be formulated which would specify the resource combination at each point in time, for each change in techniques, and for each price situation. The present study involves an investigation of the resources employed by commercial market egg producers in the Lower Fraser Valley and Vancouver Island areas during the period of 1949 to 1951 to determine (1) the deviation of the actual resource combinations employed during each year from the theoretically optimum combination required for maximum net returns and (2) the effectiveness of alterations to the resource combination made by producers in attempting to adjust their operations to variations in the input-output price relationships. The production function method of analysis was used because it recognized the basic functional relationships in the production process and provided a quantitative analytical technique founded on general economic principles. The analysis was based on input- output data compiled from detailed records of 66, 57 and 45 commercial market egg enterprises for the respective years 1949, 1950 and 1951 ending on September 30. For the purpose of this analysis, the numerous individual resources employed in the production of market eggs were aggregated into the categories of (1) land, buildings and equipment, (2) laying flock, (3) labor, (4) feed, and (5) other cash expenses. A Cobb-Douglas production function was derived for each year by the least-squares method of fitting a linear multiple regression equation. The marginal value products of the resource categories, with all inputs fixed at their geometric means, were estimated by partial differentiation of the production function with respect to each input variable. As indicated by the coefficient of multiple determination, about 95 per cent of the variance in total output (gross income) from the market egg enterprises during each year was explained by the five input categories. According to the t-test, coefficients of the following input categories were statistically different from zero at the five per cent significance level: laying flock and feed in 1949; feed and other cash expenses in 1950; and laying flock and feed in 1951. All coefficients had a value less than 1.0, indicating diminishing marginal returns to all input categories. Returns to scale, as measured by the sum of the coefficients, were constant for each year. In each year, the marginal value products were larger for the input categories of laying flock and feed than for the other inputs. In view of this persistent inequality, it was apparent (1) that the theoretically optimum combination of resources for these egg enterprises was not attained in any of the three years and (2) that the adjustments in resource inputs from year to year did hot constitute a major improvement in the resource combination. The marginal value products of the various resources revealed the (average) results of the decisions taken by producers in using the resources at their disposal for the production of market eggs. The failure to achieve the most profitable combination of these resources was attributed to restrictions imposed by (1) production techniques and practices that prevented quick and precise adjustments to the input of certain resources, (2) inflexibility and indivisibility of resources, and (3) imperfect knowledge of output and prices in the future. Some of these restrictions may preclude the possibility of effective improvement in resource use in the short run.

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