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The Production Cost of Weapons and its Importance

Part I: Answer the following 3

questions. 1. Make an economic argument for or against conscription.

2. Discuss the following statement: “In the long-run the least expensive way to acquire weapons is to purchase them from foreign countries.”

3. Discuss the costs and benefits of maintaining a defence industrial base. Is it important or necessary for every country to be able to produce weapons domestically? 2

Part II: Answer any 3 of the following 8 questions.

4. Discuss Canada’s history of defence spending. What recommendations would you make to the government to improve its approach?

5. Comment on the usefulness of Skogstad’s (2017) study of Canada’s World War II navy. Be sure to mention any problems with the study itself, and any difficulties that policy-makers may have in applying the technique in the future.

6. What is the long-run danger of developing technologies to protect yourself from enemy weapons? What are some problems with the model we discussed in class?

7. Discuss the following statement: “Strong leadership is important in a military alliance.”

8. Discuss the costs and benefits of using Private Military Contractors (PMCs) versus Reserves to fulfill a surge capability for the military. Which approach would you recommend?

9. Describe and discuss the problems contract designed face in regards to defence procurement. Suggest solutions to these problems.

10. Evaluate the following statement: “The government should try to rely on competitive markets as much as possible in the procurement process.”

11. Do offset agreements make economic sense? 3

Part III: Answer the following question. 12. This question is based on Lanchester’s Square Law Analysis. Suppose there are two countries: Blue (B) and Red (R). These countries are at war. They suffer losses at the following rate: ∂B ∂t = −QRRB0.75 ∂R ∂t = −QBBR0.75 where B and R represent the size of each country’s army respectively. QR and QB represent the quality of these two armies. t represents time. Assume that attrition in the two countries is related in the following way: ∂R ∂t R = Φ ∂B ∂t B You are the leader of the Blue army. Currently the Red Army has 10,000 soldiers, and the quality of these soldiers is equal to 2. Your Blue army currently has a quality of 2 as well. You are trying to decide how many soldiers to recruit in order that Red’s attrition rate is twice that of your attrition rate, ie Φ = 2.

a) How many soldiers should you recruit to achieve the desired attrition rate?

b) Suppose only 12,000 soldiers were available. What level of quality would you need to achieve in order to maintain the same attrition rate? You decide you want to better understand the tradeoff between quantity and quality that you are currently facing. You decide to estimate the isoquant you face with quantity on the vertical axis and quality on the horizontal axis.

c) Derive the slope of the isoquant.

d) Accurately graph the isoquant. Suppose you are able to determine that the cost of a soldier is equal to $1 and the cost of each unit of quality is equal to $4,000. e) What is the minimum budget required to achieve the attrition rate of 2 that you desire?

The Production Cost of Weapons and its Importance

Part I  1.

The economic argument for or against conscription:

Conscription is a process wherein the national army makes it compulsory for the civilian to enlist their name in the army in order to fight a battle for the country or any other purpose. Historically this has been seen in many of the instances such as French revolution of 1790 and during the world war (Smith, 2016). This process requires the civilian to leave their jobs in the country and join the armed force despite having the skills to serve the nation or the groups. In many of the countries, the conscription was compulsory which attracted a lot of criticism from the economists.

In terms of cost-benefit analysis of economics, the process of conscription is not efficient. This is due to the fact that, the inclusion of the less capable civilians requires a high amount of fund for the training purpose. DeGrasse (2016) highlighted that the inclusion also reduces the quality of the armed forces as well.  In some of the countries, the government also pays the civilians for enlisting in the army in the peacetime. This increases the expenditure of the government. One of the interesting losses that economy suffers is the potential improvement in the GDP and the growth rate of the country had the civilians worked for in their respective job within their country. Even if there is no payment is made to the conscript there exist hidden costs such as the high opportunity cost, reduced the potential of the army as a whole and many more. Conscription impacts negatively both on the economy of the country and the armed forces.

2.

Discussion of the statement:

The production set up or the capital investment for the weapon production is very high. The machinery used for the production of weapons is very high due to the technologies that these machinery used in order to produce an accurate weapon (Dimitraki & Menla Ali, 2015). In addition to that, the demand for the weapons in the peacetime is also very less. Each of the countries has a fixed demand for the weapon for a given time, especially during the peacetime. Therefore, spending a lot of amount for the development of the production unit in the home country is not worthwhile. Apart from that, production of a weapon in the home country also increases the cost of production as well. Furthermore, the domestic demand for the weapons is not so much that the production unit of the home country can make use of the economics of scale in order to reduce the cost of production.  In the short run, the government of the country can still manage to incur the cost of production of a weapon in the home country. In the short run due to the emergence of depreciation rate of the machinery and the labour costs, the overall cost for the government goes up significantly (Brauer & Gissy, 2017). In case of the foreign country production unit, that provides weapons to different countries of the world have the scope to use the economies of scale in order to keep the price of the weapons low and reasonable. This reduces per unit cost and the price of the weapons and it becomes less expensive as well.

Cost-Benefit Analysis of Defense Industrial Base

Cost benefits analysis of the defence industrial base:

The defence industrial base of a country is referred to as the asset of a country which can be used by the government for the production of weapons in the home country itself (Pigou, 2017). One of the biggest costs of establishing defence industrial base in a country is its capital investment which may sometimes be a huge burden for the government. Different assets such the machinery are very costly if the amount of production is less due to the absence of economies of scale. However, the benefits of the defence industrial base are that none of the rival or nonrival countries get to know the strength of the country (Finer, 2017). The technology used for the production of the weapon is kept secret which may give an added advantage in the wartime scenario.

Importance

It is neither important nor necessary for a country to be able to produce weapons. This is due to the fact that the production cost is very high. Operating in the economies of scale is thus an important requirement. The lack of demand generated within the country, the economies of scale are often not achievable by most of the country (Dunne & Tian, 2015). Rather a single country that can specialise in the production of the weapon will have a greater demand for the weapon which it can use for the economies of scale in order to reduce the cost and the price for each unit of weapons. Thus, it is not important for a country to produce weapons domestically. There are other countries which have a huge demand for the weapon and can produce the weapon at a lower cost.

Part II

4.

Canada’s defence budget history:

Canada has been systematically spending a high amount of financial resources for the defence of the country since the year 1867. In this year itself, the country spent around 1 million dollars for the defence of the country out of the total budget of 14 million dollars. Since then the approach and the policies of the government have changed a lot. Currently, the government spends around 28.5 Billion US dollars on the defence of the country (Ehrenberg & Smith, 2016). However, one thing that remained unchanged is the percentage of the overall budget of the country which is spent on the defence. Since the year 1867, around 7% of the overall budget of the country is spent for the defence.  One of the interesting points regarding the defence spending of Canada is that most of the amount is spend for the training of the armed forces. A comparatively small amount is spent for the purchase of new upgraded weapons. Canada purchases most of its weapons from the neighbouring USA and spends a lot of money for the joint training with the armed forces of the USA as well.

Canada's Spending on Defense Budget

Recommendations

Given the history of Canada spending on the defence of the country it is clear that, like most of the countries of the world, it values the security of the country a lot. However, most of the fund is spent for the training of the personnel which should be changed. The country should spend more on the upgraded weapons which may reduce the operational cost of the armed force of the country. Apart from that, using the reserve force is also will be easier for the government as there will be a better understanding of the conventional forces.

7.

 Strong leadership in the military 

Leadership is a key to the management of the manpower both in case of peacetime and the wartime. The strong leadership is important due to the fact that, the leaders operate under the guidance of the centre and the government of the country. Apart from that, they are also given a high amount of responsibility in terms of financial resources. The leadership structure in the military is generally hierarchical in nature where the powers are delegated to the lower leaders of the team. The main job for the military is to exert the force using the weapons and other resources of the country. This necessitates the stronghold over all the segment of the military team and hence it is important for the military to have a strong leader.

Furthermore, with the advancement in the technology and the communication, the roles and the responsibilities of the leaders in a military structure changes rapidly. In this case, it is important for the leader to have a good communication with all the lower and the middle leaders of the group (Pan, Chang & Wolde-Rufael, 2015). Along with that, the leaders of the group are also given the responsibility to take the first-hand instant action especially in case of a wartime situation. A strong military leader ensures that all the members of the team are aware of the decisions and hence executive becomes more thorough and effective. Lastly, the strong leader in the military set up is also important due to the fact that, leaders have the job to convey the message of the armed forces to the centre in order to ensure an internalisation of views of the armed forces in the decision making for the whole institutions.  

8.

Discussion of the cost and benefit analysis between PMC and reserves

The Importance of Strong Leadership in the Military

The private military contractors (PMC) are the private service providers which assist the military groups with manpower in case of urgency or immediate requirements. On the other hand, the reserves are the extra military forces that are called up when there is a need. One of the important costs that are associated with the reserve is that it requires continuous funds from the side of the government in order to pay the wages of the reserve forces. On the other hand, the cost of PMC is that there is a risk of divulgence of strategies and confidential information. The PMC requires onetime payment based on the project and the requirement reduces some of the fixed burden of the government (Dunne, & Tian, 2016). Another advantage of the PMC is that they are skilled with state of the art warfare techniques and war situations. For the reserves, the government needs to spend extra fund for the training purposes of the reserve army. However, one of the biggest advantages of using the reserve army in case of the surge is that it protects all the confidential information of the government and the group as a whole. Apart from that, the skills and the capabilities of the reveres army can also be kept secret in order to introduce more shock to the opponent in a wartime situation. It is recommended to use reserve army as confidential information of a military of a country is more valuable (Smith, 2017). Extra expenditure, in this case, may result in a better outcome for the military in case of requirements.

Part III

12.

  1. a) According to the information provided in the question,

Therefore,

=> QRB^0.75= 2(QRR^0.75)

=> B^1.25= 2 R^1.25

Now put the value of R = 10000

B^1.25= 200000

B= 17411

Therefore the requirement in the blue army is 17411 in order to achieve the state attrition level.

  1. b) Now as the available army is not what is required by the blue army.

The total army required by the blue army is 17411

And the availability of the army is 12000

QBB^1.25=2QRR^1.25

=> QB (12000)^1.25= 2QR (100000)

=> QB 125596= 400000

Therefore QB = 400000/125596= 3.18

Thus, to have the same attrition level with 1200 blue army, it needs to have a quality of 3.18.

  1. C) The slope of the isoquant is the relative changes in the two variables compared to the other one.

Therefore the isoquant is

QB= 200000/ B^1.25

Therefore the slope of the isoquant is the attrition level which in this case is

The isoquant is ? as these relate the two of the attrition rate of the countries. The slope shows the changes in the attrition rate of one country compared to the other country.

  1. D)

The graph of the Isoquant,


The attrition level over the graph is same for the two counties.

The equation of the Iso quant

QB= 200000/ B^1.25

  1. e) As found out above the 12000 with a better quality can achieve the attrition level as per the information provided in the question.

Given that, cost of 1 army is $1. The overall cost to achieve the attrition level of two where the army in blue is 1200 therefore is,

$12000.

Reference

Bove, V., & Brauner, J. (2016). The demand for military expenditure in authoritarian regimes. Defence and peace economics, 27(5), 609-625.

Brauer, J., & Gissy, W. G. (2017). The Economics of Conflict and Peace. Taylor & Francis.

DeGrasse, R. W. (2016). Military Expansion, Economic Decline: Impact of Military Spending on United States Economic Performance. Routledge.

Dimitraki, O., & Menla Ali, F. (2015). The long-run causal relationship between military expenditure and economic growth in China: revisited. Defence and Peace Economics, 26(3), 311-326.

Dunne, J. P., & Tian, N. (2015). Military expenditure, economic growth, and heterogeneity. Defence and Peace Economics, 26(1), 15-31.

Dunne, J. P., & Tian, N. (2016). Military expenditure and economic growth, 1960–2014. The Economics of Peace and Security Journal, 11(2).

Ehrenberg, R. G., & Smith, R. S. (2016). Modern labor economics: Theory and public policy. Routledge.

Finer, S. (2017). The man on horseback: The role of the military in politics. Routledge.

Pan, C. I., Chang, T., & Wolde-Rufael, Y. (2015). Military spending and economic growth in the Middle East countries: Bootstrap panel causality test. Defence and Peace Economics, 26(4), 443-456.

Pigou, A. (2017). The economics of welfare. Routledge.

Smith, R. (2016). Military economics: the interaction of power and money. Springer.

Smith, R. P. (2017). Military expenditure data: theoretical and empirical considerations. Defence and Peace Economics, 28(4), 422-428.

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