learning curves chap9 app9a
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7/29/2019 Learning Curves Chap9 App9A
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Slide 1
Mass Customizationand the Learning Curve
Appendix 9A
Mass customization is the new trend of making products
partially mass produced, and partially customized.
Lands End sells mass produced clothing in catalogs and in
stores such as Sears, but it also offers the service of stitching
initials or names in shirts or duffle bagsthis makes the
product at the same time mass produced and customized.
Economies offered in the mass production of items helps to
offset the expense of individually designed products.
2008 Thomson * South-Western
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Slide 2
Learning Curve Relationship
Learning by doing" has wide application inproduction processes.
Workers and management become more efficient
with experience.
The cost of production declines as the accumulated
past production,Q = qt, increases, where qt is theamount produced in the tth period, and Q is the
accumulated past production. Airline manufacturing, ship building, and appliance
manufacturing have demonstrated the learning curve
effect.
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Slide 3
Functionally, the learning curve relationship can
be written C = aQb, where C is the input cost ofthe Qth unit:
Taking the (natural) logarithm of both sides, we
get: log C = log a + blog Q The coefficient b tells us the extent of the
learning curve effect.
If theb = 0, then costs are at a constant level.
Ifb > 0, then costs rise in output, which is exactly
opposite of the learning curve effect.
Ifb < 0, then costs decline in output, as predicted by
the learning curve effect.
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Slide 4
Example Cookie Baskets, Inc., is a local firm that assembles gift baskets.
This is a one-owner, one-worker firm. Using data on time it takes
to make the tenth, twentieth, and so on accumulated number of
baskets, the manager estimates the following regression.
Ln T = .4 - .02
LnQ R2 = .834 N = 30(3.1) (2.6)
where T is time it took to make a basket and Qis the
accumulated number of baskets made, and the parentheses
contain t-statistics.Q: Is this firm finding any benefits ofLearning by Doing?
A: Yes, the coefficient on Q is negative, so it takes less time to make
baskets as the number of baskets made grows. The coefficient is
statistically significant as the estimated t-value is 2.6..
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Slide 5
Percentage of Learning
The proportion by which costs are reducedthrough DOUBLING output is estimated asfollows:
L = (C2/C1)100% where C1 is the input or cost for the Q1 unit of output
and C2 is the input or cost for the Q2 unit of output(and Q2 = 2Q1).
If the percentage of learning, L = 82%, then inputcosts decline 18% as output doubles.
Thepercentage of learningis 100% - L.
When L = 100%, there is no percentage of learning.
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