Learning and Costs in Airframe Production. Part I

In recent years, there has been much interest in exploring the impact of learning and changes in production rate on program costs. Most researchers agree that learning is an important determinant of cost, but agreement on the cost impact of production rate changes has been less certain. Still, common sense and economic theory suggest that production rate should be an important determinant of cost. This importance is also suggested by the fact that cost penalties for production rate changes now occur in some department of defense contracts. This paper does not present a theoretical justification for the integration of learning curves with traditional neoclassical economic theory. The general theoretical framework for this paper is published in previous reserach. The purpose of this paper is to extend the range of applicability of the general framework by considering a previously unexplored specification. In particular, this paper explores the joint production situation, where learning and output are simultaneously produced, and a model is presented that has potential application in the airframe industry. The theoretical properties of the model are explored, and a cost minimizing solution is presented. Finally, a strategy is proposed for adapting the model to a particular airframe program. (Author) Prepared in cooperation with Louisiana State Univ. Dept. of Quantitative Business Analysis. Contract F33615-81-K-5116. Presented at the ORSA-TIMS Joint National Meeting, 11-14 Oct 81, Houston, TX.