Experience curve
(Redirected from Learning curve)
Definition
The term experience curve or learning curve is used for a curve where the horizontal axis represents the total quantity produced so far (cumulatively, since the begining of production) and the vertical axis represents the current price. Different points on the experience curve are plotted at different points in time, but the time variable is not used as an axis.
The general idea is that experience curves are expected to be downward-sloping, reflecting the greater efficiencies of production that arise from more experience with the production process and more research into production technology. In general, it is hard to separate these experience curve effects from:
- Economies of scale: Larger quantities may be produced at lower cost per unit quantity, due to diminishing long-run marginal cost of production.
- Independent improvements in production technology over time that arise from technological developments exogenous to the production process. For instance, the cost might fall because of a scientific breakthrough that reduces the cost of the production equipment. Note that in these cases, one can argue that the technological developments were partly incentivized by the fact that the production process created a demand for those improvements, but the production process may have contributed a small or even negligible fraction of the demand.