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Henan agricultural university zheng Ch 4 -* ECONOMIES OF SCALE VS LEARNING Output Cost ($ per unit of output) Economies of Scale – reversible. AC1 B A AC2 Learning C ? The cost per unit depends on size of the individual?firm It does not necessarily depend on size of the individual?firm Henan agricultural university zheng Ch 4 -* Dynamic Changes inCosts--The Learning Curve The learning curve measures the impact of worker’s experience on the costs of production. It describes the relationship between a firm’s cumulative output and amount of inputs needed to produce a unit of output. Henan agricultural university zheng Ch 4 -* The learning curve implies: 1) The labor requirement falls per unit. 2) Costs will be high at first and then will fall with learning. Dynamic Changes inCosts--The Learning Curve Henan agricultural university zheng Ch 4 -* Learning Curve assumptions The learning curve may vary one product to another and from one organization to another. The rate of learning depends on factors such as the quality of management and the potential of the process and products Henan agricultural university zheng Ch 4 -* Critically Important in Industrial Cost Analysis The learning effect can lead to very large reductions in cost as production progresses Finding ways to make learning faster can result in a huge competitive advantage Starting production ahead of your competitors Finding better processes and being faster to implement them The same “S” and the same cost of the first unit Starting production ahead of your competitors r—competitors b—business Cost per unit Quantity(accumulative) Qr Qb Cr Cb Q Cr Cb Finding better processes and being faster to implement them Personnel learning Supervisory learning r—competitors b—business Cost per unit Quantity(accumulative) Henan agricultural university zheng Ch 4 -* Learning curve is Not Useful when… …production is sporadic (零星) Small lot job shops (小批量加工车间) …work is fully automated and there is no way to impro
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