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Assess the validity of the following statement: "Economies of learning are nothing but economies of scale over time." Give an example of an industry in which there are strong economies of scale but only weak economies of learning.
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Assess the validity of the following statement: "Economies of learning are nothing but economies of scale over time." Give an example of an industry in which there are strong economies of scale but only weak economies of learning. By definition, economy of scale is where average cost declines with increase in output. This could flow from indivisibles such as specialised machinery, fixed costs including R&D and advertising, the cube-square rule and inventories. Economy of learning is where decrease in average cost arises from accumulating experience and know-how. The graph below also helps to illustrate the difference between the two in showing how economies of learning is different from economies of scale: Cost per unit A B AC1 C AC2 output Economies of scale moves a firm from X to Y where increase in output, decreases the cost per unit. Learning economies shift the firm from X...
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