Experience Curves » GNP

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.

dig-presentation-v3

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

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Rats Motivation

Don — Thu, 16 Jul 2009 07:20:15 +0000

Is the Learning Curve the cause for the Experience Curve?

Bruce Henderson in his “Perspective on Experience” alluded to learning being responsible for the experience Curve being the way that it is. However, he never did quantify the relationship between price and cumulative volume much less their relationship to learning. Henderson’s lack of understanding of the cause and effect relationships is exemplified by the many assertions of not knowing why the curves were as they were. Michael Rothschild in his Bionomics: Economy as Ecosystem asserts Henderson as writing:

“The experience curve phenomenon is as real as gravity. . . . [Its] effect can be observed and measured in any business, any industry, any cost element, anywhere. . . . The reason for the experience curve effect are not particularly important. The important fact is that the experience curve is a universally observable phenomenon.”

Clearly Henderson did not know and did not want to know the reasons behind experience curves as long as his experience curve phenomenon continued to be acknowledged.

See link for more:

rats_motivation

The Full Experience Curve

Don — Sat, 25 Apr 2009 19:54:05 +0000

Experience curves show the scale factor or number of dimensions “m” of the production facility, the growth rate constant constant, and contain cycles with time. The full equation for the experience curves depends upon the scale of the production facility at a given time, the number of men currently working on it and the expansion effort currently underway. Using men(t) as a variable, which is proportional to money via wages, and an exponential demand from the population gives the following differential equation and its’ solution. The periodicity is shown to be a fundamental part of the solution.

the-full-experience-curve

Research as Investment

Don — Mon, 13 Apr 2009 06:38:07 +0000

I was talking to Gregory S. Patince recently about Research being an Investment, or not. My view of course is that it can be if managed to be an investment. Just how that is so is included in the following documents. The criteria of what is required is defined.

research-as-investment-power-point1

research-as-investment-manuscript

These documents are part of the continuing dialog about what Experience Curves are and how they can be extended beyond historic data.

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).

Money

Don — Mon, 29 Dec 2008 15:03:18 +0000

Article for Chemtech on the dimensions of economic systems and their business applications (money=k*People^4):

Part One: money22
Part Two: money23

Note Figure 5, a GNP as deflater forecast from 1984 forward that is amazingly accurate.