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PRODUCTION ANALYSIS. SCOPE. PRODUCTION POSSIBILITY ANALYSIS. LAW OF VARIABLE PROPORTION. LAW OF RETURN TO SCALE. ISOQUANT - ISOCOST ANALYSIS. PRODUCTION ANALYSIS. INPUT. PRODUCTION. DEFENCE SERVICES PRODUCERS – THEY SATISFY NEEDS OF NATIONAL SECURITY. OUTPUT.

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scope
SCOPE
  • PRODUCTION POSSIBILITY ANALYSIS.
    • LAW OF VARIABLE PROPORTION.
    • LAW OF RETURN TO SCALE.
  • ISOQUANT - ISOCOST ANALYSIS.
slide3
PRODUCTION ANALYSIS

INPUT

PRODUCTION

DEFENCE SERVICES PRODUCERS – THEY SATISFY NEEDS OF NATIONAL SECURITY

OUTPUT

PRODUCTION: CONVERSION OR TRANSFORMATION OF INPUTS TO OUTPUT.

PROCESS ADDS VALUE TO INPUTS TO SATISFY NEEDS/ WANTS.

PRODUCTION:ADDITION OF VALUE/ UTILITY.

slide4
PRODUCTION ANALYSIS

INPUT

PRODUCTION

PRODUCTION ANALYSIS

OUTPUT

PRODUCTION ANALYSIS:LAWS GOVERNING RELATIONSHIP BETWEEN INPUTS & OUTPUTS.

LAWS HELP DECIDE OPTIMAL COMBINATION OF INPUTS(RESOURCES)FOR DESIRED RESULTS AT LOWEST COST.

DEFENCE SERVICES

slide5
PRODUCTION ANALYSIS
  • LAWS
    • LAW OF VARIABLE PROPORTIONS.
    • LAW OF RETURN TO SCALE.
  • ANALYSIS TECHNIQUES
    • PRODUCTION POSSIBILITY ANALYSIS.
    • ISO-COST / ISO-QUANT ANALYSIS.
slide6
PRODUCTION ANALYSIS

INPUT

PRODUCTION

PRODUCTION ANALYSIS

OUTPUT

PRODUCTION ANALYSIS:LAWS GOVERNING RELATIONSHIP BETWEEN INPUTS & OUTPUTS.

LAWS HELP DECIDE OPTIMAL COMBINATION OF INPUTS(RESOURCES)FOR DESIRED RESULTS AT LOWEST COST.

slide7
PRODUCTION FUNCTION

SUBSTITUTION OF RESOURCE

  • WITHIN ONE INPUT ITSELF: INCREASE/ DECREASE
  • ONE INPUT BY ANOTHER.

PRODUCTION FUNCTION

  • RELATIONSHIP BETWEEN INPUTS AND OUTPUTS
  • P = f (R1,R2…Rn)
  • INFANTRY Vs MECHANISED
  • AD AIRCRAFT Vs MISSILES
  • GUNS Vs GROUND STRIKE AIRCRAFT
slide8
LAW OF VARIABLE PROPORTIONS
  • HOW TOTAL & MARGINAL OUTPUT IS AFFECTED BY CHANGE IN ONE INPUT KEEPING OTHER INPUTS CONSTATNT.
  • “AS PROPORTION OF ONE FACTOR IN A COMBINATION OF FACTORS IS INCREASED, MARGINAL & AVERAGE OUTPUTS WILL INCREASE THEN AFTER A POINT, FIRST MARGINAL AND THEN AVERAGE OUTPUT WILL DIMINISH”.
  • APPLICABLE IN SHORT RUN.
slide9
LAW OF VARIABLE PROPORTIONS
  • EFFECT ON OUTPUT: THREE STAGES
    • INCREASING RETURNS – MARGINAL RETURN RISES
    • CONSTANT RETURNS – MARGINAL RETURN FALLS
    • DIMINISHING RETURNS – MARGINAL RETURN BECOMES NEGATIVE
law of variable proportions
LAW OF VARIABLE PROPORTIONS

CONSTANT RETRUN: INCREASE IN OUTPUT PROPORTIONATE TO INCREASE IN INPUT

DIMNISHING RETURN: INCREASE IN OUTPUT LESS THAN PROPORTIONATE TO INCREASE IN INPUT

INCREASING RETURN: INCREASE IN OUTPUT MORE THAN PROPORTIONATE TO INCREASE IN INPUT

1 2

OPTIMAL POINT IN EMPLOYMENT OF FACTOR

TP

STAGE I II III

A

MP> AP

B

AP> MP

MP/AP

AP

MP

LABOUR

examples of law of variable proportions
EXAMPLES OF LAW OF VARIABLE PROPORTIONS
  • NO OF AIRCRAFT TAKING PART IN BOMBING MISSION AND DESTRUCTION SOUGHT.
  • NO OF GUNS ALLOTTED TO NEUTRALISE A TARGET AND EFFECT ACHIEVED.
  • AMOUNT OF TIME ALLOCATED TO TRAINING AND STANDARDS ACHIEVED.
  • NO OF MEN ALLOCATED TO A TASK AND OUTPUT.
  • IN SHORT, IN SITUATIONS WHERE ONE FACTOR IS INCREASED, WHILE OTHERS REMAIN CONSTANT.
slide14
LAW OF VARIABLE PROPORTIONS

ASSUMPTIONS

  • NO CHANGE IN TECHNOLOGY IMPROVEMENT IN TECHNOLOGY BOUND TO RAISE OUTPUT.
  • ONLY ONE FACTOR VARIABLE, REST CONSTANT.
law of return to scale
LAW OF RETURN TO SCALE
  • DEALS WITH EFFECT ON OUTPUT, WHEN ALL INPUTS CHANGE SIMULTANEOUSLY IN SAME RATIO - DOUBLE, TREBLE ETC…
  • LARGER THE SCALE OF ACTIVITIES – LOWER GENERALLY THE COST OF ACHIEVING OUTPUT.
  • ECONOMIES OF SCALE ARISE FROM LARGE SCALE ACTIVITIES.
law of return to scale1
LAW OF RETURN TO SCALE
  • ECONOMIES RESULT FROM
    • EFFICIENT USE OF RESOURCES
    • FULLER UTILISATION OF EXISITING CAPACITY
    • R&D
law of return to scale2
LAW OF RETURN TO SCALE
  • ECONOMIES OF SCALE
    • TRUE ONLY UP TO A POINT.
    • THEN DIS-ECONOMIES SETS IN.
  • THREE STAGES
    • INCREASING RETURNS – MARGINAL RETURN RISES
    • CONSTANT RETURNS – MARGINAL RETURN CONSTANT
    • DIMINISHING RETURNS – MARGINAL RETURN DIMNISHES
law of return to scale3
LAW OF RETURN TO SCALE

OPTIMAL POINT IN EMPLOYMENT OF FACTORS

6

5

STAGE 2

STAGE 1

STAGE 3

MARGINAL

OUTPUT

4

3

2

1

0

MARGINAL PRODUCT CURVE

1 2 3 4 5 6 7 8 9 10 11

NO OF COMPOSITE UNITS OF FACTORS OF PRODUCTION

law of return to scale4
LAW OF RETURN TO SCALE
  • DIS-ECONOMIES START OPERATING AS SCALE OF ACTIVITY IS RAISED BEYOND A POINT.
  • OPTIMUM MIX OF INPUTS TO ACHIEVE THE RESULT VARIES WITH THE DEGREE OF RESULT DESIRED.
  • APPLICABLE IN LONG RUN.
  • CDR MUST ANALYSE THAT MARGINAL RETURN IN TERMS OF RESULT NOT LESS THAN MARGINAL INCREASE IN INPUT.
production possibility analysis
PRODUCTION POSSIBILITY ANALYSIS
  • DETERMINES MAX RESULT POSSIBLE WITHIN GIVEN RESOURCE ALLOCATION.
  • ANALYSIS OF ONE INPUT – TWO OUTPUT CASE.
  • DETERMINES MOST EFFICIENT COMBINATION OF TWO FOR MAXIMISING RESULTS WITHIN GIVEN ONE INPUT.
  • TECHNIQUE MAKES USE OF PRODUCTION POSSIBILITY CURVE.
production possibility analysis1
PRODUCTION POSSIBILITY ANALYSIS
  • EXAMPLE
  • ALLOCATED BUDGET – C CRORES.
  • ACQUISITION OF OPTIMUM COMBINATION OF OFFENSIVE POTENTIAL (OP) AND DEFENSIVE POTENTIAL (DP).
  • C CRORE – 400 OP OR 930 DP POSSIBLE.
  • DEFENCE PLANNER FORMULATES PRODUCTION POSSIBILITY SCHEDULE.
production possibility schedule input defence resources output op dp1
PRODUCTION POSSIBILITY SCHEDULE(INPUT- DEFENCE RESOURCES OUTPUT -OP&DP)

COMBINATIONS POSSIBLE

REAL SITUATION PRODUCTION POSSIBILITY SCHEDULE CAN BE FORMULATED BASED ON COST BENEFIT ANALYSIS, SYSTEM ANALYSIS AND OR

production possibility curve
PRODUCTION POSSIBILITY CURVE

PP CURVE FOR BUDGET C + X CRORES

COMBINATIONS ON PP CURVE ARE THE UTMOST THAT BUDGET CAN FETCH

500

400

300

200

100

0

E1

NON FEASIBLE COMBINATION

I1

OFFENSIVE

POTENTIAL

E2

COMBINATIONS I1 & I2 NOT GETTING BEST OUT OF BUDGET

EFFICIENCY

I2

E3

0 200 400 600 800 1000 1200

DEFENSIVE POTENTIAL

production possibility curve1
PRODUCTION POSSIBILITY CURVE

CONCAVE NATURE OF PP CURVE

MARGINAL RATE OF TRANSFORMATION: (MRT) AMOUNT OF ONE OBJECT GIVEN TO ACHIEVE EXTRA AMOUNT OF OTHER

500

400

300

200

100

0

E1

E2

MRT:INCREASES PROGRESSIVELY BECAUSE RESOURCES LESS AND LESS ADAPTABLE TO OTHER OBJECT IS DIVERTED.

E3

OFFENSIVE

POTENTIAL

E4

0 200 400 600 800 1000 1200

DEFENSIVE POTENTIAL

production possibility curve2
PRODUCTION POSSIBILITY CURVE

ALL COMBINATIONS ON PP CURVE EFFICIENT: WHICH TO CHOOSE?

500

400

300

200

100

0

E1

E2

E3

OFFENSIVE

POTENTIAL

E4

0 200 400 600 800 1000 1200

DEFENSIVE POTENTIAL

slide34
INDIFFERENCE CURVE

A

ALL POINTS YIELD EQUAL LEVEL OF MILITARY UTILITY OR EFFECTIVENESS. DECISION MAKER INDIFFERENT TO CHOICES BETWEEN COMBINATIONS.

500

400

300

200

100

0

B

C

OFFENSIVE

POTENTIAL

D

IC1

0 200 400 600 800 1000 1200

DEFENSIVE POTENTIAL

slide35
INDIFFERENCE MAP

EACH CURVE REPRESENTS DIFFERENT LEVEL OF EFFECTIVENESS.

IC 1

IC 2

500

400

300

200

100

0

IC 3

OFFENSIVE POTENTIAL

0 200 400 600 800 1000 1200

DEFENSIVE POTENTIAL

production possibility curve with indifference map superimposed
PRODUCTION POSSIBILITY CURVE WITH INDIFFERENCE MAP SUPERIMPOSED

I-INEFFICIENT

E- POSSIBLE & OPTIMUM

N-NON FEASIBLE

IC 1

IC 2

500

400

300

200

100

0

IC 3

N

E1

E2

E

I

OFFENSIVE POTENTIAL

E3

E4

N

I

E5

I

0 200 400 600 800 1000 1200

DEFENSIVE POTENTIAL

production possibility curve with indifference map superimposed1
PRODUCTION POSSIBILITY CURVE WITH INDIFFERENCE MAP SUPERIMPOSED

PP CURVE SHOWS ALL COMBINATIONS UTMOST THAT BUDGET CAN FETCH (EFFICIENCY) .

IC 1

IC 2

500

400

300

200

100

0

IC 3

E1

E2

INDIFFERENCE CURVE SHOWS ALL COMBINATIONS HAVING EQUAL LEVEL OF MILITARY UTILITY (EFFECTIVENESS) .

I

E

OFFENSIVE POTENTIAL

E3

E4

I

E5

I

0 200 400 600 800 1000 1200

DEFENSIVE POTENTIAL

indiffernce curve analysis national security vs devp
POLICY FEASIBLE AREA

POLICY FEASIBILITY CURVE BASED ON GDP

(TOTAL RESOURCES)

INDIFFERNCE CURVE ANALYSISNATIONAL SECURITY VS DEVP

20

10

RATE OF ECO DEVP

0

0 10 20 30 40 50 60 70 80 90

LEVEL OF SECURITY %

indifference curve defence exp vs devp
20

10

RATE OF ECO DEVP

0 10 20 30 40 50 60 70 80 90

LEVEL OF SECURITY %

INDIFFERENCE CURVE DEFENCE EXP VS DEVP

INDIFFERENCE CURVES SHOWING THE DEGREE TO WHICH NATIONAL INTERESTS ARE MET

IC5

IC 4

IC3

IC2

IC1

0

production possibility curve with indifference curve superimposed defence exp vs devp
20

10

RATE OF ECO DEVP

0 10 20 30 40 50 60 70 80 90

LEVEL OF SECURITY %

PRODUCTION POSSIBILITY CURVE WITH INDIFFERENCE CURVE SUPERIMPOSEDDEFENCE EXP VS DEVP

INDIFFERENCE CURVES SHOWING THE DEGREE TO WHICH NATIONAL INTERESTS ARE MET

E

D

C

IC5

IC 4

A

IC3

POLICY FEASIBLE AREA

IC2

POLICY FEASIBILITY CURVE BASED ON GDP

(TOTAL RESOURCES)

B

IC1

0

production possibility curve applications
PRODUCTION POSSIBILITY CURVE APPLICATIONS
  • A SQN OF TPT AIRCRAFT LIFTING MEN AND MATERIAL.
  • AN ENGINEER COY CLEARING MINES AND CONSTRUCTING DEFENCES.
  • A SET OF MACHINES PRODUCING TWO PRODUCTS.
  • FORCES USED NOW AND HELD IN RESERVE.

ALL SITUATIONS WHERE ONE RESOURCE CAN BE USED FOR TWO PURPOSES

isoquant curve
100

80

60

40

20

0

BOMBERS

0 20 40 60 80 100

BOMBS

ISOQUANT CURVE

TWO COMBINATION OF INPUTS GIVING SAME OUTPUT

MORE BOMBERS WITH SINGLE BOMBS

BOMBERS WITH TWO BOMBS

LESSER NO OF BOMBERS FLYING MORE SORTIES

10 TARGETS DESTRUCTION

isoquant curves
100

80

60

40

20

0

BOMBERS

50 TARGETS

40 TARGETS

30 TARGETS

20 TARGETS

10 TARGETS

0 20 40 60 80 100

BOMBS

ISOQUANT CURVES

IT IS POSSIBLE TO MOVE TO HIGHER LEVEL OF OUTPUT BY INCREASING ATLEAST ONE INPUT.

DIFFERENT ISOQUANT FOR DIFFERENT OUTPUTS

isocost line or exchange curve or equal cost line or budget line
ISOCOST LINE OR EXCHANGE CURVE OR EQUAL COST LINE OR BUDGET LINE

100

80

60

40

20

0

VARIOUS COMBINATIONS OF BOMBERS AND BOMBS THAT CAN BE PROCURED IN GIVEN BUDGET

X

BOMBERS

Y

Y1

0 20 40 60 80 100

BOMBS

isoquant isocostcurves
ISOQUANT & ISOCOSTCURVES

ISOCOST shows exchange/ subs between items keeping budget constant (ECONOMY).

100

80

60

40

20

0

ISOQUANT shows exchange/ subs between items keeping output constant (EFFECTIVENESS).

A

BOMBERS

50 TARGETS

40 TARGETS

30 TARGETS

E

E1

20 TARGETS

10 TARGETS

D

B

0 20 40 60 80 100

BOMBS

isoquant and isocost analysis applications
ISOQUANT AND ISOCOST ANALYSIS APPLICATIONS
  • SITUATIONS WHERE TWO PARTIALLY SUBSTITUTABLE FACTORS PRODUCE SAME OUTPUT.
  • EFFECTIVENESS IN A GIVEN BUDGET.
  • COMBINATION FOR A GIVEN BUDGET AND EFFECTIVENESS.
  • BUDGET INCREASE REQUIRED FOR ENHANCING EFECTIVENESS.
  • REDUCTION IN EFFECTIVENESS DUE TO BUDGET CUT OR INCREASE IN PRICE.
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