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FACTORS OF PRODUCTION AND PRODUCTION ANALYSIS

FACTORS OF PRODUCTION AND PRODUCTION ANALYSIS. SCOPE. PRODUCTION POSSIBILITY ANALYSIS. LAW OF VARIABLE PROPORTION. LAW OF RETURN TO SCALE. ISOQUANT - ISOCOST ANALYSIS. PRODUCTION ANALYSIS. INPUT. PRODUCTION. OUTPUT. PRODUCTION : CONVERSION OR TRANSFORMATION OF INPUTS TO OUTPUT.

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FACTORS OF PRODUCTION AND PRODUCTION ANALYSIS

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  1. FACTORS OF PRODUCTION AND PRODUCTION ANALYSIS

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

  3. PRODUCTION ANALYSIS INPUT PRODUCTION 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.

  5. LAWS LAW OF VARIABLE PROPORTIONS. LAW OF RETURN TO SCALE. ANALYSIS TECHNIQUES PRODUCTION POSSIBILITY ANALYSIS. ISO-COST / ISO-QUANT ANALYSIS. PRODUCTION 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. SUBSTITUTION OF RESOURCE WITHIN ONE INPUT ITSELF: INCREASE/ DECREASE ONE INPUT BY ANOTHER. PRODUCTION FUNCTION PRODUCTION FUNCTION • RELATIONSHIP BETWEEN INPUTS AND OUTPUTS • P = f (R1,R2…Rn)

  8. 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. LAW OF VARIABLE PROPORTIONS

  9. 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

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

  14. 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.

  15. LAW OF RETURN TO SCALE ECONOMIES RESULT FROM EFFICIENT USE OF RESOURCES FULLER UTILISATION OF EXISITING CAPACITY

  16. 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 SCALE

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

  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. 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

  25. 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. LAW OF RETURN TO SCALE

  26. PRODUCTION POSSIBILITY ANALYSIS • DETERMINES MAXIMUM 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.

  27. 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.

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

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

  30. 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 DEFENSIVEPOTENTIAL

  31. 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 E3 OFFENSIVE POTENTIAL E4 0 200 400 600 800 1000 1200 DEFENSIVE POTENTIAL

  32. 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

  33. 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

  34. 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

  35. 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

  36. 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

  37. INDIFFERNCE CURVE ANALYSISNATIONAL SECURITY VS DEVP POLICY FEASIBLE AREA POLICY FEASIBILITY CURVE BASED ON GDP (TOTAL RESOURCES) 20 10 RATE OF ECO DEVP 0 0 10 20 30 40 50 60 70 80 90 LEVEL OF SECURITY %

  38. 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 CURVES SHOWING THE DEGREE TO WHICH NATIONAL INTERESTS ARE MET IC5 IC 4 IC3 IC2 IC1 0

  39. PRODUCTION POSSIBILITY CURVE WITH INDIFFERENCE CURVE SUPERIMPOSEDDEFENCE EXP VS DEVP 20 10 RATE OF ECO DEVP 0 10 20 30 40 50 60 70 80 90 LEVEL OF SECURITY % 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

  40. Slides Prepared by Kinshuk De

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