PRODUCTION ANALYSIS

1. PRODUCTION ANALYSIS

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

3. 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.

4. 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

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

6. 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.

7. 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

8. 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.

9. 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

10. LAW OF VARIABLE PROPORTIONSPRODUCTION OF AMN SHELLS PER MACHINE PER HOUR IN ORD FACTORY

11. LAW OF VARIABLE PROPORTIONSPRODUCTION OF AMN SHELLS PER MACHINE PER HOUR IN ORD FACTORY

12. 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

13. 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.

14. LAW OF VARIABLE PROPORTIONS ASSUMPTIONS • NO CHANGE IN TECHNOLOGY IMPROVEMENT IN TECHNOLOGY BOUND TO RAISE OUTPUT. • ONLY ONE FACTOR VARIABLE, REST CONSTANT.

15. 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.

16. LAW OF RETURN TO SCALE • ECONOMIES RESULT FROM • EFFICIENT USE OF RESOURCES • FULLER UTILISATION OF EXISITING CAPACITY • R&D

17. 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

18. RETURNS TO SCALE(PRODUCTION OF AMN SHELLS IN ORD FACTORY PER MACHINE)

19. RETURNS TO SCALE(PRODUCTION OF AMN SHELLS IN ORD FACTORY PER MACHINE)

20. RETURNS TO SCALE(PRODUCTION OF AMN SHELLS IN ORD FACTORY PER MACHINE)

21. RETURNS TO SCALE(PRODUCTION OF AMN SHELLS IN ORD FACTORY PER MACHINE)

22. RETURNS TO SCALE(PRODUCTION OF AMN SHELLS IN ORD FACTORY PER MACHINE)

23. RETURNS TO SCALE(PRODUCTION OF AMN SHELLS IN ORD FACTORY PER MACHINE)

24. RETURNS TO SCALE(PRODUCTION OF AMN SHELLS IN ORD FACTORY PER MACHINE)

25. 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

26. 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.

27. 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.

28. 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.

29. PRODUCTION POSSIBILITY SCHEDULE(INPUT- DEFENCE RESOURCES OUTPUT -OP&DP) COMBINATIONS POSSIBLE

30. 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

31. 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

32. 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

33. 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

34. 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

35. 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

36. 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

37. 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

38. 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 %

39. 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

40. 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

41. 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

42. 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

43. 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

44. 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

45. 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

46. 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.