Learning curve: average cost reduction over time due to production experience.
When knowledge gained is used to increase production methods so that output is produced with increasing efficiency, the resulting decline in average costs is said to reflect the effects of the firm's learning curve.
Learning through production experience permits the firm to produce output more efficiently at each and every output level.
To isolate the effect of learning/experience on average cost, it is necessary to identify carefully that portion of average-cost changes over time which is due to other factors.
Learning curves relate cost differences to total cumulative output for a product.
Reported learning/experience rates include the effects of both learning and economies of scale.
Managers have found that the use of the learning-curve concept can substantially improve their ability to forecast production costs based on projected cumulative output which improves pricing decisions and production strategies.