Dynamic Learning Augmented Production Planning Models

A dynamic constraint elasticity of substitution (CES) framework is presented for modeling cost in made-to-order production. The criterion is cost minimization subject to production function constraints. The time paths of the state variables are consistent with those that are generated by actual production programs. In addition to providing an alternative explanation of the learning curve, this model also demonstrates that knowledge brought into the production process affects the rate of learning. This explains why learning is a more important cost determinant for made-to-order as opposed to assembly-line programs.