Steep Learning Curves

A 2016 EPA paper called “Cost Reduction through Learning in Manufacturing Industries and the Manufacture of Mobile Sources” estimated automobile learning curves at 84% to 88%.

Some think “steep learning curves” are a bad thing. Used in their first sense, i.e., how quickly someone learns, it’s the opposite. Learning or experience curves measure time reductions to do a task as repetitions of it double, as percentages. If it took you 10 hours to do a job the 1st time you did it, 8.4 hours the 2nd and 84% of 8.4 hours or 7.1 hours the 4th time, you’re on an 84% learning curve. If you took 10 hours for the 1st job and 8.8 hours for the 2nd one, and 88% of 8.8 hours or 7.7 hours for the 4th, an 88% curve described your experience.

Our 1981 auto industry work found that Product Demand fell at the equivalent of an 87.2% curve. As shown below, eventually, a flatter 88% learning curve for a car could intersect its Product Demand Curve. Then, production ceases, as its cost exceeds its sustainable price.

A steeper cost curve of 84% never approaches the Product Demand Curve; instead, it diverges from it. In such cases, Demand Frontiers limit sales.

Moral of the story: Steep learning curves are good.

#innovation #learningcurve #sales #steeplearningcurve

What About Learning?

If costs rise as quantities increase in mining and refining, creating what classic economists call upward-sloping curves (see the last post), how do costs behave in other industries?

Let’s look.

Solar manufacturing costs have consistently fallen over time. This phenomenon, known as Swanson’s Law, observes that “at present rates, costs go down 75% about every ten years ( The consistent drop in costs reflects the learning or experience curve, which observes the amount of time people take to complete tasks falls over time. In other words, people get smarter about how to get tasks done; the more often they do those tasks. The learning curve is one of the great omissions in modern economics. Where else can we find such curves?

#prices #supply #learning #learningcurve