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Productivity Concerns at RKC: Production Function and Returns to Scale

CASELET, MANAGERIAL ECONOMICS
ET Cases, 4 pages

Case Preview

Productivity Concerns at RKC: Production Function and Returns to Scale

 

Ravi Kumar (Ravi) is the Founder and CEO of RK Constructions (RKC), established in 2005, in Hyderabad. Born into the family of a farmer in Khammam district,  Telangana, Ravi had always wanted to become an engineer, but had to opt for a diploma because of his pecuniary conditions. To fulfil his aspirations he completed the three-year Diploma in Civil Engineering in 2000 from Government Polytechnic, Kothagudem. Upon his completion of the diploma, he came to Hyderabad and worked as a Draughtsman and Site Supervisor for a small construction firm, where he drew house plans, floor plans, Reinforced Cement Concrete (RCC) structural designs for residential houses and also supervised the work at construction sites. After gaining 2 years of experience and identifying the business potential in taking up small  housing projects, he quit his job. He took up small housing construction projects from individual clients along with responsibilities of designing and site supervision. During this time, he developed good business connections with many people within the construction industry and grasped the business intricacies.................

Teaching Note Preview

Productivity Concerns at RKC: Production Function and Returns to Scale

 

Synopsis

RK Constructions (RKC), based in Hyderabad, is into the construction of residential and commercial building projects. Recently, RKC bagged a major project of a  commercial building. However, with the current labor shortage in the State, the company employed skilled, semi-skilled and unskilled migrant workers. While the work progressed smoothly for quite some time, the company began facing challenges like project delays and cost over-runs due to decreased labor productivity. The Project Manager and other Engineers favored towards substitution of workers with machines and capital-intensive prefabricated construction material. The Founder and CEO of the firm, Ravi Kumar (Ravi), was in a dilemma whether to increase the number of workers or pump-in additional capital in the form of machines and ready-made  components. The analysis of the caselet facts introduces the participants/students to the concepts of Production Function, Law of Diminishing Returns, Economies and Diseconomies of Scale.

Prerequisite Conceptual Understanding (PCU)/Before the Classroom Discussion

The participants should be asked to read the following chapter to help them connect the concepts discussed in the caselet:

  • • Paul A. Samuelson, et al., “Production and Business Organization”, Economics, 19th Edition (Special Indian Edition), McGraw Hill Education (India) Private Limited, 2014 – To understand the concepts of Production Function, the Law of Variable Proportions or Law of Diminishing Returns, Economies of Scope, Economies of Scale and Diseconomies of Scale

 

Case Positioning and Setting

The caselet can be used in MBA, Executive MBA or Executive Development Programs, for the following module/topic:

  • • Production and Business Organization – To understand the Theory of Production, Production Function, Law of Diminishing Returns and Economies and diseconomies of Scale

 

Assignment Questions

  • I. What do you understand by Returns to Scale/Law of Variable Proportions and what is its importance to production and cost analysis? Illustrate the operation of Returns to Scale with the help of RKC’s worker productivity.
  • II. What is a Production Function and what is the difference between Long-run and Short-run Production Functions? What are Isoquants and their properties? Using RKC’s caselet facts, exemplify the concept of Isoquants.
  • III. ..............................

 

Preamble to the Caselet Analysis and Suggested Orchestration

This caselet provides an opportunity to understand the importance of Returns to Scale/Law of Variable Proportions. Also it introduces the students/participants to the concepts of Production Function and Isoquants in the backdrop of RKC’s productivity issues and substitution dilemma. When the caselet facts are clinically analyzed, the learning outcomes can be quite pronouncing especially when these concepts are linked to how they can aid in business decision. Accordingly, this caselet analysis was carried out in the following way [Exhibit (TN)-I].............

$3.37
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Product code: ME-2-0016, ME-2-0016A

Abstract


This caselet's purpose is to introduce the participants/students to the concepts of Isoquants (the Production Function), Returns to Scale/Law of Variable Proportions and Economies and Diseconomies of Scale, through the workforce productivity dilemma faced by RK Constructions (RKC). RKC, an upcoming construction company based out of Hyderabad (India) enlisted the services of skilled migrant workers to tide over the shortage of workforce and to bolster the productivity as several industry experts suggested to Ravi Kumar (Ravi), Founder and CEO of RKC. However, Ravi is grappled with a new problem arising out of engaging the migrant workers. While the productivity increased initially, gradual decrease was witnessed after a short period, prompting the Project Manager and Construction Engineers to substitute/replace workers with capital-intensive prefabricated construction material. How would the concepts of Law of Diminishing Returns, Isoquants and Economies and Diseconomies of Scale guide RKC's dilemma?





Pedagogical Objectives


  • To understand and illustrate the concept of Returns to Scale/Law of Variable Proportions in the light of RK Constructions’ productivity dilemmas

  • To understand the concept and operation of Isoquants in the context of Long-run Production Function and examine the substitution possibilities of workforce at RKC with capital

  • To discuss the concepts of Economies and Diseconomies of Scale and debate on their relevance for decision-making



Case Positioning and Setting

The caselet can be used in MBA, Executive MBA or Executive Development Programs, for the following module/topic:


  • Production and Business Organization – To understand the Theory of Production, Production Function, Law of Diminishing Returns and Economies and diseconomies of Scale







This Case Pack Includes:
- Abstract
- Caselet
- Teaching Note (**ONLY for Academicians)
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