Declining Cost of Production

I went through a phase of reading books that related economics to biology. If you think about it, when you’ve got a really good theory of economics, it should help you explain the things we observe in nature (animal behavior, evolution, etc).

During this time, I ran into this “law” — the cost of to produce a unit of any thing declines on an inverse power law relationship with the number of units produced (on a global basis). And it turns out this is true for many things, including such basic things as eggs. This was first observed by Kenneth Arrow, in his 1962 paper “The Economic Implications of Learning by Doing”. I ran into it in Bionomics by Michael Rothschild.

You hear a lot about Moore’s law and Metcalfe’s law. I’m always surprised you don’t hear more about this one, since its at least as profound in its impact on new technologies.