Production Analysis for Punjab National Bank

8/4/2019 Production Analysis for Punjab National Bank

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Production Analysis ForPunjab National BankBusiness Economics

9/14/2011

Rajan DhawanMBA GenSection A


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Production Analysis for Punjab National Bank

The production function for Punjab National Bank has to be calculated.

The various factors which are required in the production analysis are: -

Output: -The output for the bank is being depicted by the total income

of the bank.

Labour Cost: - The total labour cost is being taken as the total

compensation that is paid to the employees of the bank.

Capital: -The total capital cost that is taken into the bank is the sum of

Authorized Equity Capital, Issues Equity Capital, Reserves and Deposits.

The data for the following is given below.

Year

TotalIncome

LabourCost

Authorisedequitycapital

Issuedequitycapital

Reserves/funds Deposits

TotalCapital

Mar-95 2883.67 605.88 0 0 901.95 24708.43

25610.38

Mar-96 3416.82 757.84 0 0 797.67 27122.89

27920.56

Mar-97 4021.77 811.02 0 0 991.5 30806.42

31797.92

Mar-98 4610.71 871.44 0 0 1441.9 35173.55

36615.45

Mar-99 4927.89 1068.93 0 0 1717.51 40777.13

42494.64

Mar-00 5879.57 1183.67 0 0 2060.35 47483.23

49543.58

Mar-01 6646.38 1459.08 0 0 2456.95 56131.13

58588.08

Mar-02 7680.57 1316.32 1500 265.3 3003.96 64123.48

68892.74

Mar-03 8762.61 1476.08 1500 265.3 3767.7 75813.51

81346.51

Mar-04 9775.46 1654.06 1500 265.3 4746.5 87916.4 94428.2

Mar-05 10126.06 2423.98 1500 315.3 7846 103166.89

112828.19

Mar-06 10958.41 2114.97 1500 315.3 9061.07 119684.92

130561.29

Mar-07 12981.16 2352.45 1500 315.3 10120.16 139859.68

151795.14

Mar-08 16058.4 2461.54 1500 315.3 12003.05 166457.22

180275.57

Mar-09 21939.59 2924.38 3000 315.3 14338.33 209760.51

227414.14


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Mar-10 24643.77 3136.69 3000 315.3 17407.62 249329.8

270052.72

The amount shown above is in Rs Crores.

The graphs for the various heads of labour, capital and total income are

shown as: -

Now we plot the function oflabour/output and capital/output

Yearlabour/total

income capital/total income

Mar-95 21.01% 8.881175724

Mar-96 22.18% 8.171504498

Mar-97 20.17% 7.90644915

Mar-98 18.90% 7.941390805

Mar-99 21.69% 8.623293134

Mar-00 20.13% 8.426395128

Mar-01 21.95% 8.815036155


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Mar-02 17.14% 8.969743131

Mar-03 16.85% 9.283365344

Mar-04 16.92% 9.659719338

Mar-05 23.94% 11.14235843

Mar-06 19.30% 11.9142549

Mar-07 18.12% 11.6934958

Mar-08 15.33% 11.22624732

Mar-09 13.33% 10.365469

Mar-

10 12.73% 10.95825517

Analysis: -So, we plot the labour/output (total income) and we observe

that the ratio has decreased over the years. This means that the

organization is spending more on technology advancement i.e capital and

less on labour to increase the output. This also shows that due to

computerization the workforce was reducing which is shown from the

years 2005- 2010.

Now, we observe the pattern for capital/output.


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Analysis: - We see that the ratio capital/output has increased over the

time which means that the organization has increased the capital

spending over the time. This also explains the decrease in the

labour/output ratio.

Now, we find the output as function of labour and capital using the

function

Output = f(L,K)

Where L is the labour cost and K is the capital cost.

We define O = A* L^ * K^

To obtain the values of alpha and beta we have to use the regression

analysis. To do so we take log on both the sides.

Log O = log L + Log K + Log A.

The various values for the logarithms are given. Then we use regression

analysis to calculate the values thereof.


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Year

Log(TotalIncome)

Log(LabourCost)

Log(TotalCapital)

Mar-95 3.459945559 2.782386617 4.408416022

Mar-

96 3.533622101 2.879577524 4.445924125Mar-97 3.60441723 2.909031564 4.502398712

Mar-98 3.663767807 2.940237491 4.563664376

Mar-99 3.692661005 3.028949266 4.628334154

Mar-00 3.769345565 3.073230641 4.694987385

Mar-01 3.822585168 3.164079105 4.767809266

Mar-

02 3.885393452 3.11936148 4.838173458Mar-

03 3.942633483 3.169109896 4.910338925Mar-

04 3.990137203 3.218551259 4.975101711Mar-

05 4.005440496 3.384529032 5.052417621Mar-

06 4.039747545 3.325304211 5.115814432Mar-

07 4.113313503 3.371520402 5.181257867Mar-

08 4.205702272 3.391206897 5.255936877Mar-

09 4.341228507 3.466033805 5.356817464Mar-

10 4.391707147 3.496471599 5.431448556

Putting this information in to regression analysis software we get the

values of A, alpha and beta. The values observed are as follows.

A = 0.64

= - 0.08309

= 0.89267

+ = 0.80967

so, we get the function as

O = 0.64 * L-0.08309 * K0.89627


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So, we observe that the value of + is less than 1 so, we observe

decreasing return to scale in this case.


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YearIncome (in Rs

Crore)Capital (in Rs

Crore)Labour (in Rs

Crore)

Mar-95 187.19 23.12 11.21

Mar-96 204.58 25.26 15.09Mar-97 227.12 27.32 16.49

Mar-98 298.6 28.92 24.9

Mar-99 379.62 32.24 31.82

Mar-00 440.3 44.25 39.06

Mar-01 928.65 98.71 83.08

Mar-02 1564.49 135.2 121.04

Mar-03 1553.48 165.53 137.03

Mar-04 1734.65 199.26 161.4

Mar-05 1602.8 226.6 183.89

Mar-06 2122.61 334.39 219.17

Mar-07 4188.59 497.34 317.21

Mar-08 3676.3 497.5 385.1

Mar-09 4512.7 529.2 430.3

Mar-10 4967.8 645 533.6

Mar-11 5747.8 897.3 727.4


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YearLabour/Inco

meCapital/Inco

me

Mar-95 0.059885678 0.123510871

Mar-96 0.073760876 0.12347248Mar-97 0.07260479 0.120288834

Mar-98 0.083389149 0.096851976

Mar-99 0.083820663 0.084927032

Mar-00 0.088712242 0.100499659

Mar-01 0.089463199 0.106294083

Mar-02 0.077367065 0.086417938

Mar-03 0.08820841 0.106554317

Mar-04 0.093044706 0.114870435

Mar-05 0.114730472 0.141377589

Mar-06 0.103254955 0.157537183

Mar-07 0.075731929 0.118736854

Mar-08 0.10475206 0.135326279

Mar-09 0.095353115 0.117269041

Mar-10 0.107411732 0.129836145

Mar-11 0.126552768 0.156111904


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RESULTS OF REGRESSION ANALYSIS

SUMMARY OUTPUT

Regression Statistics

Multiple R0.99610

4

R Square0.99222

3AdjustedR Square

0.991112

StandardError

0.049496

Observations 17

ANOVA

df SS MS F Significa

nce FRegression 2

4.375819

2.187909

893.0846 1.72E-15

Residual 140.0342

980.0024

5

Total 164.4101

17

Coefficie

nts

Standard

Error t Stat P-value

Lower

95%

Upper

95%

Lower

95.0%

Upper

95.0%

Intercept1.86173

70.2120

848.7782

834.57E-

07 1.4068622.3166

131.4068

622.3166

13

X Variable1 0.29749

0.165989

1.792222

0.094727 -0.05852

0.653502

-0.0585

20.6535

02X Variable2 0.60858

0.159276

3.820922

0.001872 0.266968

0.950192

0.266968

0.950192

The production function gets modified as

Q = 1.86(L).29(K).60

=0.29

=0.60

+ = 0.29 + 0.60 = 0.89


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+ < 1

Hence, it is safe to conclude that the production

function for Dr. Reddys Laboratories indicatesdecreasingreturnto scale.

Production Analysis for Punjab National Bank

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