Analytical solution for a class of learning by doing models with multiplicative uncertainty

Analytical solution for a class of learning by doing models with multiplicative uncertainty

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Article ID: iaor2002557
Country: Spain
Volume: 7
Issue: 1
Start Page Number: 1
End Page Number: 24
Publication Date: Jan 1999
Journal: TOP
Authors: ,
Keywords: programming: probabilistic
Abstract:

We find the closed form optimal solution for a class of learning by doing models, where multiplicative uncertainty is introduced in a piecewise linear cost reduction function. Previous literature does not find the closed form optimal solution for these models. We consider a monopolist, facing a linear demand function. The optimal policy for the resulting problem is shown to be piecewise linear and continuous. The optimal output increases with unit cost for certain values of the latter. Numerical examples are provided.

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