where ct is the real unit or average cost at time t; and it is
a function of accumulated knowledge, expressed as
cumulative production up to time t ðntÞ: a is the elasticity
of unit costs with respect to cumulative volume.2 ut is a
stochastic disturbance term reflecting the effects of
inherent randomness in cost–production processes.
Eq. (1) does not necessarily hold for the individual firm,
but for the industry or specific technology as such.
The rate of the decline in costs, i.e. the progression
rate (PR) is being determined by a: The PR is being
calculated as