Economies of Scale Versus the Learning Curve - LinkedIn

As Besank et al note, there is a difference between economies of scale and the learning curve (81). With the learning curve, a company can ... AsBesanketalnote,thereisadifferencebetweeneconomiesofscaleandthelearningcurve(81).Withthelearningcurve,acompanycandosomethingatalessexpensiveunitcostaftertime,whereeconomiesofscalearelowercoststhemoreyoudo. Thesetwoconceptsareindependentofeachother.Whetheroneismoreimportantthantheotherseemstorelyonthelevelofcomplexitywithinthetaskofacompany.Ifsomethingissimple,buttakesalotofcapitaltobedone,economiesofscalewilltakeplace.Anexampleofasimple,capital-intensivebusinesswouldbetheoperationofastripmine.Onceabusinesshastheplotoflandinwhichitwantstomine,allitneedsismoreequipmentandrelativelyeasilytrainedoperatorsforthatequipment.Themoreequipment,themorethecompanycancarryoutofthemine,andthecheapereachpoundofrockistotakeout. Conversely,throwingcapitalatdifferentproblemsisnotalwaystheanswer.Sometimeshumancapitalisthemostimportantelementofabusiness.Oftenaserviceprovidercanbeanexample,butitexistsinskilledmanufacturing.Forexample,someofthemostexpensivewatchesintheworldarestillmadebyhandinSwitzerland.Thesewatchesaremiraclesofthejeweler’scraft,evenifthebestmadewatchwillneverkeeptimeaswellasatwenty-dollardigitalwatch.Thecompaniesthatmakethesewatchespositiontheirwaresasluxurygoods,sothattheyarenotinthesamemarketasthecheapdigitaltimepiece.Theyaremadeatasmallscalefordiscerningbuyers.Hereiswherethelearningcurveisimportant.Well-trainedwatchmakerswillbeabletomakemorewatchesfasterandwithhigheraccuracy.Thisallowsacompanythatemploystheseartisanstohavelowercostsperunit.Italsodiscouragesnewentrantstothemarket,keepingtheretailvalueofthewatchestheysaleinflated. Withthetwoexamples,itbecomespossibletosaythatboththelearningcurveandeconomiesofscareareimportanttothefinancialhealthofcompanies.Theimportantdifferenceisthehumanfactorbetweenwhichonewillbemoreimportant. References Besanko,D.,Dranove,D.,Shanley,M.,&Schaefer,S.(2013).EconomicsofStrategy(6thed.).NewYork:Wiley. 7 Like Comment Share Tovieworaddacomment,signin Tovieworaddacomment,signin APoliticsofLove Jun24,2022 WePluribusUnum:NoThinBlueLines Jun1,2022 KeepRunning:AGraduationSpeechfortheClassof2020 May10,2020 MoneySavingTipsinTimeofCrisis May7,2020 SavingMoneyinaTimeofCrisis Apr24,2020 ScienceisaProcess Jan10,2020 ModelingaTypicalFinancialCrisis Jul15,2019 Re-CentertheStakeholder:ForaNewCapitalism Jul9,2019 LookingTowardtheNextRecession Jul8,2019 AManifestoforaBoringFinancialSystem Jul1,2019 Othersalsoviewed UntamingtheHorse:FinancialRegulationin America JohnEdgarMihelic,MA,MA,MBA 3y Canwelearnsomethingfromfoodaboutthevalueofremotework? DanAriely 2mo HowNetflixusesAWSservices? AjinkyaKhandave 1y Exploretopics Workplace JobSearch Careers Interviewing SalaryandCompensation Internships EmployeeBenefits SeeAll