Historical Perspective

Abstract

Many industrial cost studies have involved the direct estimation of parameters in an empirically specified cost function. Most of these studies, in line with economic theory, explore the relationship between cost and output rate; e.g. see Walters (1963) for a review of this approach to cost estimation. With the introduction of Wright’s (1936) seminal work, a new dimension was added to empirical cost studies. Wright’s paper is the foundation for many of the progress function studies that are prevalent in the engineering literature. These early engineering cost studies often ignored microeconomic theory. In many engineering cost studies, cost was modeled as a function of cumulative output ¹; output rate was considered a statistically unimportant variable for cost prediction. There is a remarkable shortage of literature that recognizes or attempts to link economic cost theory with industrial engineering learning curves. The purpose of this perspective is to provide a historical integration of engineering progress functions with economic theory. This review of literature spans five decades, beginning with the work of Wright (1936) and ending with recent dynamic cost research in the 1980’s.