F. Experience Curve Pricing (Save this work to prepare the final). i would like to teach you of Experience Curve Pricing. The concept of experience curve theory, sometimes called as leaming curve, is a combination of economies of scale +experience of the worker Theglobal standardization that we had leamed in a previous chapter creates economies of scale that in tun lower the average cost of production (AC). This will offer competitive advantage in pricing Steps in Computation a) b) It applies to any business practice but more in manufacturing mass production. Different experience rate on different business tasks; electronics vs. mink coats. First unit cost K, Experience rate Alpha (a), Total cost TC, Average cost AC, Number of units c) handled or produced X, For the 1tunit. K is same as ACfor the 1" unit to produce. Example: Total cost of 300 units will be denoted as TCx= TC300 KX 1-b raised in a logarithm model. When the cumulative volume doubles, the average cost decreases according to the experience rate (a) that ranges from 0 to 99 percent. You need to pay an extra attention to the volume (X) for doubling. The DOUBLING in quantity(100 % - Experience Rate) reduction in AC. AC is cost per unit computed by total cost divided by the total units of production or volume (X). e) Fill in the blanks for the problem in the next page if a 87 % , K = $1000, and Price (P)= $550. Follow the steps. Do not rush. Go step by step. Step 1. Make it sure that X exactly doubles. See the next page, it should be like 1, 2, 4, 8, the 16 and on. Step 2. Compute AC in accordance with the experience rate, a. See here for X1 through X8 and how AC declines as the X (quantity) double. Step 3. Compute TC, multiplying X by AC Step 4. Compute TR, multiplying X by P. Step 5. Compute Profit, subtracting TC from TR. **Please remember Doubling in volume or quantity when you work on the problem. Practice now. TR Profit TC AC 550 1000.00 1000.00 1 550 1740.00 870.00 2 550 3027.60 756.90 4 550 550 550 550 Remember the volume (x) should be doubling to have the model be effective in cost predio remember the word DOUBLE always. Do not work any part of the problem until you make it sure that the volume exactly doubles. Again