We have detail information of Learning Curve: Theory, Meaning, Formula graphs.
Learning Curve: Theory, Meaning, Formula
Following is the detail information
Meaning
Learning curve is defined as the curve that shows the decline in average cost of production with rise in cumulative total output overtime. In other words, A learning curve refers to the graphical representation or mathematical concept that depicts the rate at which learning or skill acquisition occurs over time. As firms gain experience in the production of a commodity or service, their average cost of production declines.
The learning curve can be expressed algebraically as follows:
C = a Qb … (i)
Taking log on both sides of the equation (i), we get
Log C = Log (a. Qb)
or, Log C = Log a + Log Qb
∴ Log C = Log a + b LogQ … (ii)
Graphs of Learning Curve
Significance or importance of Learning Curve in Business Decision Making
The significance or importance or uses of learning curve are as follows:
- It helps to make pricing decisions and production strategies.
- It helps managers to improve their ability in forecasting production cost based on
projected cumulative output. - Learning Curve helps to determine long-run competitive strategy.
- It helps to choose production techniques.
Example of Learning Curve
Assume that the first unit labour cost of Rs. 1000 to produce. So, the second unit will cost Rs. 1000 *0.80 = Rs. 800, the fourth unit Rs. 640 ( 800* 0.80), the eight unit Rs. 512 ( Rs. 640*0.80), the sixteenth unit Rs. 409.60 ( Rs. 512*0.80) and so on.
Other Important links:
a. Cobb-Douglas Production Function Formula: CLICK HERE
b. Production Function Definition Types & Importance: CLICK HERE
c. Isoquant: Meaning and Properties: CLICK HERE
Frequently Asked Question
a. Is a learning curve a good thing?
= Following are the benefits of learning Curve:
- Learning curves in economics result in decreased production costs over time as workers gain experience and become more efficient.
- Improved productivity is a key benefit of learning curves, as workers develop skills and proficiency in their roles.
b. What does an 80% learning curve mean?
= An 80 percent learning curve means that the cumulative average time (and cost) will decrease by 20 percent each time output doubles.
