Debunking the Learning Curve

Abstract

The learning curve relates manufacturing cost to cumulative production. It is shown that for every well-behaved learning curve there is a corresponding relationship between unit cost and the annual rate of production. Cause and effect are assignable to this new function which is dubbed the opportunity curve. The growth in annual demand creates opportunities and provides the funds for increased mechanization and larger batch facilities in process dominated manufacture. In the absence of growth, both are seriously curtailed. The concept of the opportunity curve is developed from available data related to the U.S. integrated circuit industry. The opportunity curve in combination with the warranted growth curve permits an analysis of corporate strategies which remain obscure in interpretations of the learning curve. Reductions in cost are enhanced by growth, and a firm which holds a very significant share of the market--either across the board or in a segregated sector of the technology--will have a cost advantage. There is nothing wrong with the learning curve. But in combining annual production and time in the single variable, cumulative production, it hides more than it reveals.

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