Have you considered the learning curve effect on production?


Question Description

What is learning curve?have you considered the learning curve effect on production.

Tutor Answer

School: Boston College

Graphical representation of the common sense principle that more one does something the better one gets at it. Learning curve shows the rate of improvement in performing a task as a function of time, or the rate of change in average cost (in hours or dollars) as a function of cumulativeoutput. Used in resourcerequirementsplanning, learning curves are also employed in setting incentive rate schemes based on the statistical findings that as the cumulative output is doubled, the averageunit cost declines by a constant percentage.

Learning Curve Effect

Learning Curve measures the relation between increase in per worker productivity (leading to decrease in per unit labor cost at fixed prices) associated with an improvement in labor skills from on the job experience.

In other words, Learning Effect leads to fall in the cost of production per unit because with the increased involvement in the production process Labor and Managers become more and more familiar with the production process. This leads to improvement in their efficiency level. Here ‘Efficiency’ means greater amount of output generated per labor unit over the same amount of input of labor hours in the process of production. This happens on account of following factors:

  • The labor units or the workers who are engaged in the production or manufacturing process become familiar with the process of production with the passage of time. Thus, they require less time or labor hours to generate same amount of output which they were earlier producing by using more labor hours.
  • Managers who are involved in the management and scheduling of the production process also get familiar with the process and are thus in better position to use the resources at their disposal in better manner as well as scheduling the production process more efficiently thus leading to more output for the same amount of input.

Following Diagram is representation of the Learning Curve Effect:

Understanding Learning Curve Effect
Labor Hours to Produce GoodNumber of Batches ProducedAverage Number of Labor Hours Required to a BatchAverage Cost of Labor (If Labor Cost is Rs. 500 per Labor Hour)

From the above table it is clear that the average number of hours required to produce a batch of particular good say 'X' is going down on account of Learning Curve Effect. If we assume that labor cost per hour is Rs. 500 and this labor cost per hour stays fixed, then the average cost of labor required to produce a batches of good 'X' is goes down on account of increased output from the same amount of labor hour input. Thus, as per the table, the Average Labor Cost per batch is going down from Rs. 5000 to Rs. 3000 by the time the company is producing sixth batch of Good X and this happens on account of Learning C

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