A firm’s learning curve, which
shows the relationship between average cost and cumulative output (the sum of
its output since the firm started producing), is AC = a + bN-r , where AC is
its average cost; N is its cumulative output; a, b, and r are constants; and 0
… r 6 1.
What is the firm’s AC if r = 0? What can you say about the firm’s
ability to learn by doing?b.
If r exceeds zero, what can you say about the firm’s ability to
learn by doing? What happens to its AC as its cumulative output, N, gets
extremely large? Given this result, what is your interpretation of a?