Productivity Concerns at RKC: Production Function and Returns to Scale
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
- 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].............