Absorptive Capacity and the Learning Curve ________________________________________________________________________________________________________________________________________________ absorptive capacity: Absorptive capacity refers to limits to the ability of a society (or a firm) to implement new technologies. For example, societies with low literacy rates tend to be relatively slower to adopt cutting edge technologies than are societies in which most workers are educated. Or a firm’s culture [the informal mechanisms for working that have been developed by the firm’s existing personnel] may foster resistance to the automation of certain operations – “if it ain’t broke, don’t fix it.” In some cases, external consultants may be hired to guide productivity growth, or a firm may rely on a research and development division or a “skunk works” [a group of better workers] to develop prototypes for new products, or to implement the proposed technology. learning curve: A learning curve refers to the difficulty (out-of-pocket costs and time absorbed) of becoming proficient with a concept or technology. Whether a firm or a country, the learning curve is approximated by the decline in average costs across time or the increasing productivity across time as cumulative output increases. ________________________________________________________________________________________________________________________________________________
	In this figure, the organization (or society) for which the learning curve is traced in blue has significantly better absorptive capacity than the organization (or society) traced in red. In fact, the organization or society with superior absorptive capacity may maintain its absolute production costs advantage indefinitely, although it theoretically may never have a comparative advantage. Understanding this potential and seemingly paradoxical result may require a review of the concept of comparative advantage.
________________________________________________________________________________________________________________________________________________ Author: Ralph Byrns
Economics instructors and students are hereby granted provisional permission to use these materials for educational purposes only. Commercial use of any of these materials is forbidden. Withdrawal of this permission may be announced at this site without notice, and these materials may not be used thereafter without written permission.