Reviewed by Aug 27, 2020| Updated on
A learning curve is a graphical representation of how an improvement in learning results from greater experience. In other words, the more someone or something performs a task, the better they get at it.
In 1936, Theodore Paul Wright illustrated the impact of learning on aircraft industry production costs and proposed a statistical model of the learning curve.
In 1968, the Unit Cost model pioneered by Wright was generalized by Bruce Henderson of the Boston Consulting Group (BCG) and explicitly used a Power Law, also called Henderson's law. He named this particular version called the experience curve. BCG studies, in the 1970s, reported curve effects of experience for specific industries varying from 10 to 25 per cent.
Understanding Learning Curve
In general, the economic learning of production and performance meets the same kinds of curves of practice and has fascinating side effects. Improvement in quality and profitability can be viewed as entire processes of learning organization or business or economy, as well as for individuals.
The general trend states of first speeding up and then slowing down, as the technological change is achieved at a practically achievable level. Paradoxically sometimes, the effect of reducing local effort and resource use by studying improved methods has the opposite latent impact on the next larger scheme, by encouraging its extension, or economic development.
Formula to Calculate the Learning Curve
Wright's Cumulative Average Model
In Wright's Model, the learning curve function is defined as follows:
Y = a * X * b where: Y is the cumulative average time or cost per unit X is the cumulative number of units produced A is the time or cost required to produce the first unit b is the slope of the function when plotted on log-log paper (log of the learning rate/log of 2)
The learning curve applies to the following decision:
- Pricing decision based on potential cost estimates.
- A timetable of workers based on potential needs.
- Capital needs forecasts
- Establishment of an incentive system