Learning Curve in Economics - MBA Knowledge Base

Economies of Scale are shown in terms of Cost-output relation measured along the same Long Run Average Cost Curve; whereas, Learning Curve relate cost ... Skiptocontent Home»ManagerialEconomics»LearningCurve–DefinitionandMeaning Inmanyofthemanufacturingprocessestheaveragecostsdeclinesubstantiallyasthecumulativetotaloutputincreases.Thisistheoutcomeofboth labor andmanagementbecomingmoreknowledgeableaboutproductiontechniqueswithgrowingexperience.“Thereisanelementoflearninginvolvedthroughexperience.”Practicemakesamanperfect.Doingtheworkrepetitivelymakes labor moreefficient.Productivityisenhancedandtheselessonsofenhancedproductivityleadtogreaterefficiencywhichinturnwillresultinoverallreductionintheaveragecostofproduction. LearningCurveinEconomics Accordingto JamesL.PappasandMarkHirschey“Thelearningcurve(alsoknownasexperiencecurve)phenomenonhasaneffectonaveragecostssimilartothatforanytechnologicaladvancethatprovidesanimprovementinproductiveefficiency.” Learningthroughexperienceinproductionenablesthefirmtoproduceoutputmoreefficientlyandeconomicallyateachandeverylevelofoutput. Abovefigureshowsthehypotheticallongrunaveragecostcurvesforperiodstandt+1.AsaresultofmoreexperienceandenhancedknowledgeofproductionmethodthelongrunaveragecostshavedeclinedfromLRACt toLARCt+1foreverylevelofoutput.ThisimpliesthatbeforeanylearningorexperienceQtoutputwasproducedattheaveragecostofOA;whereasafter‘experience’gainedQtoutputisproducedataveragecostofOB.ThusABrepresentscostsaving. Theeffectoflearningonproductioncurvecomes asa resultofseveraltypesofimprovements;suchas;jobfamiliarization,lesstimerequiredtoinstructworkers,developmentofskill,gettingbetterequippedthroughtraining,short-cutmethodsofproduction,improvedcompetition-ordination,bettercompetition-operationetcAircraftmanufacturers,ship-building,manufacturerofelectronicitemstestifytheeffectoflearningandexperienceoncost. Learningorexperienceratesof20to30percentareoftenreported.Ifthelearningrateis,say,20%thenwecanconcludethateverytime,thequantityofoutputproduceddoublestheaccumulatedaveragetimeforallunitsproducedtothatpoint willbe80%ofitsformerlevel.E.g.iftoproducefirst10unitsofX,anaverageof100man-hourseacharerequiredthentoproducefirst20unitsofX(i.e.inclusiveofthefirst10unitsofX)onanaverage80man-hourseachwillberequired. Itmustbenotedthatthelearningcurverelationbeaccuratelyrepresentedonlywhenoutputscale,technologyandinputpricesareheldconstant.MistakenlyoftenthelearningcurveineconomicsisidentifiedwithEconomiesofScale.Itmustberememberedthatalthoughrelated,thetwoarequitedistinct.EconomiesofScaleareshownintermsofCost-outputrelationmeasuredalongthesameLongRunAverageCostCurve;whereas,LearningCurverelatecostdifferencestototalcumulativeoutputlevelsforasingleproduct.Thesearemeasuredintermsofshiftsoflong-runaveragecostcurves.Careneedstobetakentoseparatelearningandscaleeffectsincostanalysis. RelatedPosts:ConceptofEconomiesandDiseconomiesofScaleinManagerialEconomicsLawofReturnstoScaleLawsofReturnsinEconomicsPureCompetitionSellingCostinMonopolisticCompetitionCobb-DouglasProductionFunctionTheEdgeworthBoxRevenueStructureofaFirmunderMonopolyFirm'sShut-DownPointLawofDemand Postnavigation Previous:NewProductPricingStrategiesNext:CostAnalysisofMultipleProducts LeaveaReplyCancelreplyYouremailaddresswillnotbepublished.Requiredfieldsaremarked*Comment*Name* Email* Website Δ ThissiteusesAkismettoreducespam.Learnhowyourcommentdataisprocessed. RelatedPostsBenefitsofCostVolumeProfitAnalysisInflation:Meaning,Causes,andEffectsUsageofMacroeconomicsforBusinessDecisionsTheLemonMarketTheoryImportanceofCapitalControlsinEconomicPolicyCashlessEconomy-TheRoadTowardsaCashlessWorldAnalysisofJosephSchumpeter's'TheoriesofEconomicDevelopment'TheEdgeworthBoxPovertyTrapTheEconomistsViewofEnvironmentalPollution Categories BusinessAnalysis BusinessCommunication BusinessEthics BusinessFinance BusinessHistory BusinessTaxation FinancialManagement GeneralBusinessArticles GlobalBusinessEnvironment HealthcareManagement HumanResourceManagement IndustrialMarketing InformationSystemsManagement InternationalBusiness InternationalBusinessLaws InternationalFinance InvestmentManagement LegalFramework LogisticsManagement ManagementArticles ManagementCaseStudies ManagementConcepts ManagementInformationSystems ManagementPrinciples ManagementScience ManagerialEconomics MarketingManagement MBACareer MercantileLaw ModernManagementConcepts OperationsManagement OrganizationalBehavior PersonalFinance ProjectManagement ResearchLiteratureReviews ResearchMethodology RetailManagement ServicesMarketing StrategicManagement SupplyChainManagement TaxManagement