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Production Decisions

Production decisions have many facets. It should be clear from the foregoing analysis that the decision to produce is linked with several other decisions like the decision to supply to the market, the decision to build or liquidate inventory, the decision to enhance the plant capacity or to go for intensive capacity utilization, the decision concerning or to go for intensive capacity utilisation, the decision concerning location of the unit, variability of inputs, choice of technique and technology, product line decisions, product mix decisions, multiplant operations and logistics management and so on. It is an endless list.

There is no denying of the fact that some of the basic concepts of Business Economics and specially, some of the concepts, precepts and techniques of production analysis are directly helpful in arriving at optimum decision concerning production, materials purchase and handing, manpower recruitment and deployment, machine use and maintenance. For example, the equi-marginal concept-and-precept often provides direction for optimal decision.

For a multi-factor employer

[MP_l = MP_k = MP_m] Where labour L, machine capital K and material m are being employer in the productive process.

For a multiproduct firm,

MR_Q1 = MR_Q2= …… MR_Qn Equi-marginal revenue

Or, MR_Q1 = MP_Q2 = MP_Qn equi-marginal factor productivity where the product range [Q₁……Q_n] are being produced jointly and sold in the market, generating revenue flows.

The point is, meaning total productivity is easier than measuring partial factor productivity. In a highly automated plant, most labour is redundant, but still you need core and critical labour to man the machine and monitor the plant and process. How do we measure and compare the productivity of man with that of machine, material and plant?

Production decision cannot be resolved though consideration of only ‘physical efficiency’ but also ‘cost efficient’. In fact, production maximizing decision are produced is the least cost output. Thus, efficiency can be measured in terms of not only volume and variety, but also quality and costs. Thus, we need to move from production to costs analysis. And then we may revisit some of the optimum production decision in view of cost considerations.