Experience Curves » economy

Q:What Law of Nature Determines Price and Volume etc.

Don — Mon, 09 Nov 2009 17:44:13 +0000

A: For an Economy, like say the U.S. where we have variables Employed Men, Price,Volume,Wages,Investment,Scale of Operation, Production Process Mean Dimensions of Radius R with Number of space dimensions being used = m, Dollars, A Gross National Product, Specific Products and the change in time of these variables then:

For a change in Production of a Product with time the Behavior of Men is to Minimize their time/Per unit of Volume of the product, i.e. that ratio (dMen/dRadius with time)=0.

Using reduced values, or indexed values of these variables based on a given year for GNP, Price, Volume, etc. and the Fact that Dollars=Price*Volume=Wages*Men, and Volume=Radius^m gives a Slope for the Experienc Curve=(1/m-1)*(1-Exp(-k*t)) wherE k=growth rate constant for the product and t=time (usually years) .

Because “All Men involved minimize their time per unit of space dimension, with time”. Thus this Law of Nature is claimed as Garnett’s Minimization Law

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Inherent in the foregoing is also the fact that Investment=Scale^(1/m).

Garnett’s Minimization Law of Human Behavior

Don — Tue, 25 Aug 2009 04:16:19 +0000

In the world of Supply and Demand the money that one group of people are willing to spend for something is equal to the amount of Money another group of people are willing to provide (sell) that something. The something can be anything, either goods (a product) or services. Money is identical to the time of Employed men times their Wage rate as that is exactly what one can buy with money. The production of that something in a physical facility has dimensons, like the Radius of a spherical tank brewing beer, and the quantity of beer or its Volume is proportional to the Radius raised to the power of the number of dimensions. In this case V=R^(N)=R^(3), since the number of dimensions is 3. In general, the economy is evolving, that is, it is a function of Time. The rate of change with time for the variable, say Employed is dE/dT, and Radius is dR/dT. The behavior of people when it comes time to change supply and demand is defined as Garnett’s Minimization Law:

“People minimize their time per unit of dimension, namely d((dE/dt) / (dR/dT))/dT = zero = 0 .

The result is that the Log(Money)=(1/N)*Log(Volume). Also,

Log(Price)=(1/N-1)*Log(Volume)

and other relationships that can be worked out from Money=Price*Volume=Wages*Employed=Wealth+Costs,

and the fact that demand is frequently exponential with time.

WCCE8 Presentation: Research as Investment

Don — Sun, 26 Jul 2009 06:05:09 +0000

Presentation made on August 24, 2009, in Montreal, Canada.

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Power Point presentation “with recorded voice”. Research as Investment

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Scale-up Investment vs. Scale

Don — Thu, 16 Jul 2009 07:03:10 +0000

Why do scale up rules of thumb work and why is the historic six tenths power six tenths?

The cause and effect relationship is shown in this link (publication)

scale

Why firms should be cautious in using experience curves as a strategic guide in their operations?

Don — Sat, 17 Jan 2009 04:50:22 +0000

The equation for the slope of an experience curve is (1/m-1)*(1-exp(-kg*t)) or
(SF-1)*(1-exp(-kg*t)), where: t is time typically years, kg is the exponential growth rate

constant, SF is scale factor from the slope of an xy plot of scale of the facility vs investment

in constant dollars, m is the number of dimensions of the production facility eg. 1 for linear

like a pipe line, 2 for an area facility like a plate and frame filter press, and 3 for a volumetric

facility like a tank. For a mature product slope becomes (1/m-1) or (SF-1).

If an experience curve is being extrapolated into the future any change in “m, SF, kg, or constant dollars” will cause deviation from historic performance but in accordance with the preceding equations. Since an extrapolated experience curve is basically a price-volume-time forcast based on historic performance of price-volume-time the firm should be confident it understands the historic cause and effect relationships. The foregoing equations come from fundamental considerations of Scale of Operations vs. Investment hence costs, scale factor, time, and the national deflator. The derivation of these equations is presented in experiencecurves.com.

Inflation and Real Growth

Don — Sat, 17 Jan 2009 00:02:40 +0000

The post titled “Money” shows the GNP or money=k*(employed)^4 and volume=k*(employed)^2.16 and

price=k*(employed)^1.84. In the context of these posts the number of dimensions of the production

facilities, m=2.16 and the price exponent is (4-m). Differenting by parts results is the fraction of the change

in GNP that is real growth is m/4 and the part that is inflation is (4-m)/4. The value of m therefore determines

the fraction that is inflation and real growth. The value of m determine the fraction that is real growth, namely;

m=1 results in 25% real growth,

m=2 results in 50% real growth

m=3 results in 75% real growth.

Obama’s and others “put people to work” with bail-out government money will not help the economy much if

the number of dimensions of those activities is low (e.g. a shovel in hand ditch digger) vs. high

(like building a petrochemical plant).

Wed. Talk to AIChE in Houston, Texas

admin — Wed, 23 Apr 2008 16:31:40 +0000

Will be at Houston Wed. to present to the American Institute of Chemical Engineering why Experience Curves have the Shape that they do and what the slope becomes for a mature product. It is because the slope of the x,y plot of log cumulative volume vs. log constant dollar price is (Scale factor – 1)*(1-exp(kg*time)).

The reason for the shape of experience curves is covered in this power point presentation. The material is more fully developed in the paper on the geometry of experience curves. The presentation went smoothly on Wed. 25, April at Houston. One question raised is “what happens to the experience curve for a product that is progressing nicely along an experience curve and the demand plateaus”. The answer is that it turns horizontal for a while since we are looking at constant dollar prices. The real prices rise along with inflation as time goes on. The mathematics shown for exponential growth of a product are applicable with the demand being specified as constant, i.e. the growth rate constant can be zero. For products in a ZPG (zero population growth) economy this situation will ultimately prevail.

In the presentation the question of “is learning the cause of the experience curve” was posed and answered in the negative; “it is not”. Both Professor Henderson and Michael Rothschild books do not prove that it is. An analysis of the only data basis in Rothschild’s Economy as EcoSystem can be shown to be best accounted for by Newton’s force equal mass*acceleration.