Final answer:
Option c, which states that the learning curve theory allows for more accurate budgeting by management, is the correct answer. This theory applies to various areas, not solely manufacturing, and does not mandate a uniform learning rate. Understanding this theory aids in strategic planning and competitive analysis.
Step-by-step explanation:
The correct answer to the question “Which of the following is true of the learning curve theory?” is option c. It permits management to be more accurate in budgeting. The learning curve theory is not constrained only to the manufacturing processes, as it can be applied to various areas where repetitive tasks are performed and efficiency improvements are expected over time. Additionally, it doesn't necessarily assume a constant 80 percent learning rate for all processes; the rate can vary depending on a multitude of factors such as the complexity of tasks and skills of workers. Lastly, the learning curve theory focuses more on labor efficiency gains rather than the utilization of direct materials.
Understanding the learning curve allows firms to anticipate cost reductions and improves as they become more experienced in production. This knowledge helps in strategizing and competing effectively, even when they might seem smaller compared to larger firms. In reference to long-run average cost curves, while economies of scale suggest that larger firms can produce at lower costs, a flat segment reflects that smaller firms can compete effectively at certain levels of output before diseconomies of scale set in.