Summary
In this LP we learn about cost efficiency, how to reduce costs while maintaining volume and quality. After understanding how cost efficiency can be achieved, we turn to the main critiques of neoclassical cost analysis. Up to now, everything sounded just as what they’ve been teaching us at school and college. However, a few theories stood up against all this, mainly form Industrial Organization theory.Achieving cost efficiency:
- Economies of scale
- Economies of scope
- Economies of learning
- Learning curve
- Experience curve
Critiques to neoclassical theories:
Economies of learning derive from the know-howpicked up through experience. The main difference between this and economies of scale or economies of scope is the fact that it is not correlated to production levels in the same way: it does not depend on producing more quantity or a wider portfolio, but from becoming a true specialist in a certain field, by producing a greater cumulative amount of the same product. However, this differs from economies of scale because economies of learning do not stop at a certain level, they keep on improving efficiency.
A classic example of this which is often cited is Japan’s market leadership from the 1980s in technology intensive goods such as TVs and audio equipment. The know how from economies of learning often spreads from a company with employees, leading to clusters of knowledge-rich companies often situated in a relatively small area.
There are many ways in which this learning helps drive down cost: by boosting efficiency and reducing waste in production, by R&D synergies and productivity, by better management which helps coordinate and balance the different functions and by speeding up the productive process. When learning reflects only in labour productivity, it’s analysed with a learning curve. When learning applies to the whole firm, all its processes, it’s analysed with an experience curve.
The concept of economy of learning is actually morphing into that of a ‘learning economy’, one in which efficiency and growth is driven by training and specialisation resulting in profitable, high added value goods and services.
