Question

A firms learning curve, which shows the relationship between average cost and cumulative output (the sum of its output sinceAssuming there is learning by doing (i.e., r<0), what happens to AC as cumulative output, N, gets extremely large? Average co

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Answer #1

AC = a + b
(As r = 0, Nr = N0 = 1. So, AC = a + b)

does not experience
negative
(When there is no r then there is no learning by doing and AC must fall for this so r should be negative.)

C. decreases with cumulative output
(When r < 0 then AC will become AC = a + b/Nr. So, as N increases AC will decrease.)

C. a is the average cost of producing before any learning by doing
(AC = a when there is no learning by doing.)

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