Question

(b) What are the limitations of (i) the linear production function and (ii) the Leontief production function vis-à-vis Cobb-Douglas production function?

(c) Explain the role of the manager in the production process.

Answer 1

Cobb Douglas Production Function

Cobb Douglas production function is an important function in managerial economics. It was explained by Prof. Cobb and Prof. Douglas. These two economists have studied the production patterns of American manufacturing industry. The production function explained by them is known as Cobb-Douglas production function, in their names.

Limitations of Cobb Douglas Production Function

Cobb Douglas Production Function is criticized on the following grounds

1) Cobb Douglas production function shows constant returns. But in actual practice such returns are not possible and some what rare. Normally firms are subject to either increasing or diminishing returns. It is not possible to combine the different factors due to the scarcity of factors and due to their indivisibility.

2) No single producer raises output for the sake of getting constant returns. The producer aims not at constant returns but at achieving increasing returns.

3) This production function is not applicable to agriculture.

Major limitations faced by input-output analysis are as follows:

1. Its framework rests on Leontiefs basic assumption of constancy of input co-efficient of production which was split up above as constant returns of scale and technique of production. The assumption of constant returns to scale holds good in a stationary economy, while that of constant technique of production in stationary technology.

These assumptions sacrifice reality. They do not treat the inter-industry analysis dynamically even in the so-called “dynamic model”. It tells us nothing as to how technical co-efficient would change with changed conditions. Again, some industries may have identical capital structures some may have heavy capital requirements while others may use no capital. Such variations in the use of techniques of production make the assumption of constant co­efficients of production unrealistic.

2. This assumption of fixed co-efficient of production ignores the possibility of factor substi­tution. There is always the possibility of some substitutions even in a short period, while substitution possibilities are likely to be relatively greater over a longer period.

3. The assumption of linear equations, which relates outputs of one industry to inputs of others, appears to be unrealistic. Since factors are mostly indivisible, increases in outputs do not always require proportionate increases in inputs.

4. The rigidity of the input-output model cannot reflect such phenomena as bottlenecks, increas­ing costs, etc.

Role of manager in production process

The production manager forms a very important and defining part of the organization structure of an engineering company. The responsibilities of a production manager can be summarized as follows.

1) Forecasting the requirements of the production in order to achieve the production target.

2) Making most efficient utilization of the available sources for production.

3) Minimizing ‘throughput time’ and ‘work in process inventory’. This can be achieved by systematic production planning and also by very efficient execution of the plans.

4) One of the most important responsibility of a production manager deals with reducing material handling cost, which generally is achieved by the use of efficient material handling system and also by using plant layouts which must be developed in a proper or correct way.

5) Reducing the quality cost with the help of analysis of non conformances on periodic basis and also by following suitable actions (both corrective and preventive).

6) Building team spirit among the workmen and also motivating by means of personal involvement. This task of motivation can also be achieved by designing and implementing suitable financial incentive schemes.

7) To device accurate methodology involving method study of manufacturing, along with the other engineering economic principles.

8 ) Improving the productivity level of the workers on continuous basis by workmen’s training and by bringing into use the standards of the performance derived from work measurement studies etc.