Final answer:
Negotiations determine the allocation of cost savings from a learning-curve application, and it is not a given that the buyer's company should receive all the savings. The impact of learning curves and elasticity affect how cost savings are distributed in the market. Investments in human capital are analogous, showing how initial costs can lead to future benefits.
Step-by-step explanation:
The question of whether the buyer’s company should receive the cost savings from a learning curve application in a contract situation can be complex. Generally, the assignment of cost savings can be stipulated in the contract terms and may depend on negotiations between the buyer and the seller. It is not inherently true that the buyer should receive all the cost savings merely because they are paying for the contract. Cost savings can be a result of efficiencies gained over time and could be viewed as a shared benefit.
When considering the impact of learning curves on cost, there is an expectation that as a company becomes more experienced in producing a good or service, the cost per unit will decrease. This is due to the gains in efficiency and productivity from learning. Whether these savings are passed on to the buyer or retained by the seller can vary widely depending on the structure of the market, the power of negotiation, and the specifics of the contract.
In an economic context, the concept of elasticity plays a crucial role in determining how cost savings are distributed. For instance, if demand is inelastic, significant cost savings from technological improvements could lead to substantially lower prices. If demand is elastic, prices may only be slightly reduced. Consumers generally benefit from lower prices and greater quantity, but the benefit is more pronounced in cases of inelastic demand.
In consideration of the broader picture, investments in human capital, like education, represent a similar concept to learning curves in businesses, with the expectation that future earnings will justify the initial investment.