Assignment #7

Why do economies of scale and learning curve effects look similar when they are graphed? What
different concepts do they represent? 

These two curves' impacts appear similar because, in each case, there is a decreasing
input required to produce output as the production level increases. Economies of learning are
not the same as economies of scale. Economies of scale refer to the ability to perform an
activity on a larger scale at a specific point in time at a lower unit cost. Learning economies are
cost reductions that occur as a result of accumulating experience over time and are
independent of the activity's current scale. Even when learning economies are minimal,
economies of scale can be significant. This is likely true for simple capital-intensive activities like
two-piece aluminum can manufacturing. Similarly, learning economies can be significant even
when scale economies are minimal. This is likely to be the case in complex, labor-intensive
activities such as antitrust law practice.

These two ideas are distinct from one another. Whether one is more important than the
other appears to be dependent on the level of complexity within a company's task. If something
is simple but requires a large amount of capital to complete, economies of scale will occur. It is
now possible to say that both the learning curve and scarcity economies are important to a
company's financial health. The important distinction is which human factor will be more
important.