Incentives come into play with almost every company in every
industry and in particular with General Dynamics. General Dynamics is different
from a majority of companies in that the company as a whole receives incentives
for producing certain goods. These incentives come from the Government who
contracts the production for General Dynamics production of weapons and
munitions. The company receives tax breaks for the continued productions
of small arms for the military. The company also receives tax cuts for work
with certain innovations which are set in place to encourage improvement in air
planes and other flying or space technology. Inspectors within the company also
receive incentives for "the prevention of defective bullets that would be
hazardous to the operator from reaching the battlefield or military use."
Essentially any employee who finds a defective bullet and removes it from the
line is payed extra for protecting the soldier who might have used that bullet.
Aside from its experimental laboratory work General Dynamics
produces two products; Munitions and Weapons. Depending on the demand they may
produce more or less munitions than weapons and so they would need to swap some
production from munitions to weapons and vis versa. As an example lets say General
Dynamics produces four types of ammunition and three types of weapons in order
to produce more of one type of weapon the company can give up the other types
of weapons to produce more of that particular type. Since the first set
of factories being converted to the new weapon are also weapons factories they
can produce the new weapon fairly efficiently but not as efficiently as the
original factory making the opportunity cost of one unit of the new weapon
equal to about two units of the old weapons. As more and more production
is put to the new weapon there are no longer any more weapons factories to
convert so they must begin converting ammunition factories to weapons
factories. Since the two products are so different it will have a higher opportunity
cost along the lines of four units of ammunition to one unit of the weapon
meaning that not all resources are fully adaptable to be used for all jobs. The
same principal works in reverse, say somewhere along the line the company
realizes they need to make ammunition for these weapons to be of any use
converting the initial munitions factories back will be more efficient then
converting weapons factories to munitions.
Comparative advantage is a situation where one company is able to
produce a good at a lower cost of a second good than another company. So
if there are two products rounds and guns, and two companies General Dynamics
and Generic inc. they can both maximize production by producing according to
their comparative advantages. So say General Dynamics is able to produce no
units of guns and 6 units of ammunition or 1 units of guns and 3 of ammunition
or 2 of guns and none of ammunition. Generic inc. might produce 0 and
4, or 2 and 2, or 4 and 0 guns and ammunition respectively. So General
Dynamics holds the comparative advantage in ammunition giving up one unit of
guns for three of ammo compared to Generic Inc.'s 1 to 1. Since General
Dynamics holds the comparative advantage in ammo Generic Inc. has it for guns
forgoing 1 unit of ammo for 1 of guns compared to General Dynamics 3 of ammo
for 1 of guns. With these numbers the companies know that General Dynamics
should produce ammo and Generic Inc. should produce guns so that they both
fulfill their contracts and are able to produce as many goods as possible.
