Economics Lessons From Microwaves

Written By Ed Tate

The first microwave oven was available in 1947 and would cost more than $50,000 if sold today [1]. Since then, about 2 billion microwave ovens have been built and sold. Today the typical price for a microwave is as low as $50 dollars. The price has dropped by a factor of 1000. The graph below shows this trend [1].

This price drop followed Wright’s law [2][3]. This law was discovered by Theodore Wright in 1936 when he used it to successfully forecast cost reductions in aircraft manufacturing. Since then, it has been successfully applied across manufacturing industries from aircraft, to automotive, to electronics. The laws works because there are common approaches to decrease product costs as production volumes increase. Automation reduces labor input. Redesign to integrate more functions and remove assembly steps reduces labor inputs, fasteners, and interconnections. Materials are substituted to decrease costs and better match performance requirements. Tolerances are matched to reliability requirements decreasing tooling costs or extending tooling life. Supply chains mature decreasing component costs. And recently, simulation accelerates the rate and decreases the costs to discover cost reduction. [4]

A key consequence of this law is that high volume costs can be wildly different than initial costs for a product. We continue to see this effect with the improvements in electronics, and more recently with the recent decrease in the costs of electric vehicles and space launch.

It has other consequences also. Looking closer at batteries and solar modules, their learning rate is much faster than technologies like wind [5] and nuclear [6][7] because the underlying manufacturing processes require fewer steps and the balance of a working system is relatively small. Wind and thermal electricgeneration require assembly of very complex systems spanning many manufacturing technologies and supply chains. This inherent complexity in materials and number of manufacturing steps limits possible cost reductions.

Looking forward, this helps clarify the opportunity with space based solar power (SBSP). It is inherently an electronics manufacturing problem that can benefit from the rapid learning rates possible with high volumes of production of nearly identical components. This suggests that the initial costs envisioned may drop quickly because of innovations with high volume manufacturing.

It also points to one of the contradictions seen in energy markets today. Increasingly cheaper renewables are leading to higher retail energy bills. This is because intermittent electricity is not the same as firm electricity. Firming renewables with transmission lines and storage requires tremendous amounts of bespoke engineering and tooling which limits the possible learning rates and cost reductions.

Ed Tate
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