A solution method for a class of learning by doing models.

  1. Francisco Álvarez González
  2. Emilio Cerdá
  1. 1 Universidad Complutense de Madrid
    info

    Universidad Complutense de Madrid

    Madrid, España

    ROR 02p0gd045

Journal:
Documentos de Trabajo (ICAE)

ISSN: 2341-2356

Year of publication: 1996

Issue: 3

Pages: 1-21

Type: Working paper

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Abstract

We obtain in the closed-form the optimal policy for a class of learning by doing models, in which a monopolist operating in a market with linear demand and finite time horizon, faces a lower bound in the cost reduction that can be achived through production. By using Dynamic Programming principles we show that the existence of a lower bound in the unit production cost implies that the optimal decision for output is a function which is indexed by initial unit cost. There is an optimal set of threshold values beyond wich the parameters of the production rule change. Some examples with specific parameter values are provided.

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