Figure 32-4 Economies of Scale Versus Learning by Doing
In industries with significant scale economies, small countries that do not trade will have low
levels of output and therefore high costs. With international trade, however, small countries
can produce for the large global market and thus produce at lower costs. International trade
therefore allows small countries to reap the benefits of scale economies.Learning by Doing
The discussion so far has assumed that costs vary with the level of output.
But they may also vary with the accumulated experience in producing a
product over time.
Early economists placed great importance on a concept that is now called
learning by doing. They believed that as countries gained experience in
particular tasks, workers and managers would become more efficient in
performing them. As people acquire expertise, costs tend to fall. There is
substantial evidence that such learning by doing does occur. It is
particularly important in many of today’s knowledge-intensive high-tech
industries. The distinction between this phenomenon and economies of
scale is illustrated in Figure 32-4. It is one more example of the
difference between a movement along a curve and a shift of the curve.