learning curve: A learning curve refers to the difficulty (out-of-pocket costs and time absorbed) of becoming proficient with

a concept or technology. Whether a firm or a country, the learning curve is approximated by the decline in average costs across time or the increasing productivity across time as cumulative output increases.___________________________________________________________________________________________________________
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In this figure, the organization (or society) for which the learning curve is traced in blue has significantly better absorptive capacity than the organization (or society) traced in red. In fact, the organization or society with superior absorptive capacity may maintain its absolute production costs advantage indefinitely, although it theoretically may never have a comparative advantage. Understanding this potential and seemingly paradoxical result may require a review of the concept of comparative advantage.

Definition
Graphical representation of the common sense principlethat 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 ofcumulative output. Used in resource requirements planning, learning curves are also employed in setting incentive rateschemes based on the statistical findings that as the cumulative output is doubled, the average unit cost declines by a constant percentage. For example, an 80 percentlearning curve means the per unit average cumulative cost(in hours or dollars) falls to 80 percent of the previous per unit average cumulative cost as the cumulative output doubles. Learning curves are, however, not universally applicable but show most promise in situations where non-mechanized,

repetitive assembly operations predominate and which largely use direct labor. Also called improvement curve, progress curve.

We consider the learning curve in an industry with free entry and exit, and pricetaking firms. A unique equilibrium exists if the fixed cost is positive. While equilibrium profits are zero, mature firms earn rents on their learning, and, if costs are convex, no firm can profitably enter after the date the industry begins. Under some cost and demand conditions, however, firms may have to exit the market despite their experience gained earlier. Furthermore identical firms facing the same prices may produce different quantities. The market outcome is always socially efficient, even if it dictates that firms exit after learning. Finally, actual and optimal industry concentration does not always increase in the intensity of learning.
a. Learning by doing: There is growing evidence that industries learn-by-doing! The average costs of production decline in real terms as a result of production experience as businesses cut waste and find the most productive means of producing output on a bigger scale. Evidence across a wide range of industries into so-called progress ratios, or experience curves or learning curve effects, indicate that unit manufacturing costs typically fall by between 70% and 90% with each doubling of cumulative output. Businesses that expand their scale can achieve significant learning economies of scale.