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Reconciliation of learning rates between the cumulative average vs incremental learning rate models

Robert E. Jensen

Scandinavian Journal of Management, 1991, vol. 7, issue 2, 137-142

Abstract: There are two basic learning curve time and cost models that are somewhat confusing, because the same learning rate (e.g. the 80% learning curve) yields different results. The cumulative average model applies the learning rate to average variable cost, whereas the incremental model applies it to marginal cost. This note stresses that, even though an analyst may prefer to conceptualize learning as an explicit constant in the incremental unit learning model, that same analyst has implicitly assumed a varying learning rate in the cumulative average model. A vice versa situation arises if a constant learning rate is assumed in the cumulative average model. Textbooks that compare both models do not reconcile them in the manner presented in this paper.

Keywords: Management; accounting; cost; accounting; learning; curves; cost; models (search for similar items in EconPapers)
Date: 1991
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Handle: RePEc:eee:scaman:v:7:y:1991:i:2:p:137-142