Production Analysis For

Punjab National Bank

Business Economics
9/14/2011

Rajan Dhawan
MBA Gen
Section A

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.

Total

Labour

Income
Cost
Year
Mar95
2883.67
605.88
Mar96
3416.82
757.84
Mar97
4021.77
811.02
Mar98
4610.71
871.44
Mar99
4927.89
1068.93
Mar00
5879.57
1183.67
Mar01
6646.38
1459.08
Mar02
7680.57
1316.32
Mar03
8762.61
1476.08
Mar04
9775.46
1654.06
Mar05
10126.06
2423.98
Mar06
10958.41
2114.97
Mar07
12981.16
2352.45
Mar08
16058.4
2461.54
Mar09
21939.59
2924.38

Authori
Issu
sed
ed
equity
equity
capital
capital

Reserves
/funds

Deposits

901.95

24708.43

797.67

27122.89

991.5

30806.42

1441.9

35173.55

1717.51

40777.13

2060.35

47483.23

2456.95

56131.13

1500

265.3

3003.96

64123.48

1500

265.3

3767.7

75813.51

1500

265.3

4746.5

87916.4

1500

315.3

7846

103166.89

1500

315.3

9061.07

119684.92

1500

315.3

10120.16

139859.68

1500

315.3

12003.05

166457.22

3000

315.3

14338.33

209760.51

Total
Capital

25610.3
8
27920.5
6
31797.9
2
36615.4
5
42494.6
4
49543.5
8
58588.0
8
68892.7
4
81346.5
1
94428.2
112828.
19
130561.
29
151795.
14
180275.
57
227414.
14

Mar10

24643.77

3136.69

3000

315.3

17407.62

249329.8

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 of labour/output and capital/output

Year
Mar95
Mar96
Mar97
Mar98
Mar99
Mar00
Mar01

labour/total
income

capital/total income

21.01%

8.881175724

22.18%

8.171504498

20.17%

7.90644915

18.90%

7.941390805

21.69%

8.623293134

20.13%

8.426395128

21.95%

8.815036155

270052.
72

Mar02
Mar03
Mar04
Mar05
Mar06
Mar07
Mar08
Mar09
Mar10

17.14%

8.969743131

16.85%

9.283365344

16.92%

9.659719338

23.94%

11.14235843

19.30%

11.9142549

18.12%

11.6934958

15.33%

11.22624732

13.33%

10.365469

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.

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.

Year
Mar95
Mar96
Mar97
Mar98
Mar99
Mar00
Mar01
Mar02
Mar03
Mar04
Mar05
Mar06
Mar07
Mar08
Mar09
Mar10

Log(Total
Income)

Log(Labour
Cost)

Log(Total
Capital)

3.459945559

2.782386617

4.408416022

3.533622101

2.879577524

4.445924125

3.60441723

2.909031564

4.502398712

3.663767807

2.940237491

4.563664376

3.692661005

3.028949266

4.628334154

3.769345565

3.073230641

4.694987385

3.822585168

3.164079105

4.767809266

3.885393452

3.11936148

4.838173458

3.942633483

3.169109896

4.910338925

3.990137203

3.218551259

4.975101711

4.005440496

3.384529032

5.052417621

4.039747545

3.325304211

5.115814432

4.113313503

3.371520402

5.181257867

4.205702272

3.391206897

5.255936877

4.341228507

3.466033805

5.356817464

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

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

decreasing return to scale in this case.

Year
Mar-95
Mar-96
Mar-97
Mar-98
Mar-99
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11

Income (in Rs
Crore)
187.19
204.58
227.12
298.6
379.62
440.3
928.65
1564.49
1553.48
1734.65
1602.8
2122.61
4188.59
3676.3
4512.7
4967.8
5747.8

Capital (in Rs
Crore)
23.12
25.26
27.32
28.92
32.24
44.25
98.71
135.2
165.53
199.26
226.6
334.39
497.34
497.5
529.2
645
897.3

Labour (in Rs
Crore)
11.21
15.09
16.49
24.9
31.82
39.06
83.08
121.04
137.03
161.4
183.89
219.17
317.21
385.1
430.3
533.6
727.4

Year
Mar-95
Mar-96
Mar-97
Mar-98
Mar-99
Mar-00
Mar-01
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11

Labour/Inco
me
0.059885678
0.073760876
0.07260479
0.083389149
0.083820663
0.088712242
0.089463199
0.077367065
0.08820841
0.093044706
0.114730472
0.103254955
0.075731929
0.10475206
0.095353115
0.107411732
0.126552768

Capital/Inco
me
0.123510871
0.12347248
0.120288834
0.096851976
0.084927032
0.100499659
0.106294083
0.086417938
0.106554317
0.114870435
0.141377589
0.157537183
0.118736854
0.135326279
0.117269041
0.129836145
0.156111904

RESULTS OF REGRESSION ANALYSIS

SUMMARY OUTPUT
Regression Statistics
0.99610
Multiple R
4
0.99222
R Square
3
Adjusted
0.99111
R Square
2
Standard
0.04949
Error
6
Observati
ons
17
ANOVA
df

Residual

14

Total

16

SS
4.3758
19
0.0342
98
4.4101
17

Coefficie
nts
1.86173
7

Standa
rd
Error
0.2120
84

t Stat
P-value
8.7782
4.57E83
07

0.1659
89
0.1592
76

1.7922
22
3.8209
22

Regressio
n

Intercept
X Variable
1
X Variable
2

0.29749
0.60858

MS
2.1879
09
0.0024
5

F
893.08
46

0.0947
27
0.0018
72

Significa
nce F
1.72E-15

Lower
95%
1.406862
-0.05852
0.266968

Upper
95%
2.3166
13
0.6535
02
0.9501
92

Lower
95.0%
1.4068
62
0.0585
2
0.2669
68

The production function gets modified as

Q = 1.86(L).29(K).60
=0.29
=0.60
+ = 0.29 + 0.60 = 0.89

Upper
95.0%
2.3166
13
0.6535
02
0.9501
92

+<1
Hence, it is safe to conclude that the production
function for Dr. Reddys Laboratories indicates
decreasing return to scale.