Follow the Steps A through E to complete all empty lines below in Table A.

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 handled or produced = X. For the 1^st unit, K is same as AC.

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.

Fill in the blanks below if a = 90%, K = $100, and Price (P) = $55. Follow the steps. Do not rush.

Step 1. Make it sure that X exactly doubles.

Step 2. Compute AC in accordance with the experience rate, a. ($90 = 100 x 0.90 and $81 = 90 x 0.90)

Step 3. Compute TC, multiplying X by AC.

Step 4. Compute TR, multiplying X by P.

Step 5. Compute Profit, subtracting TC from TR.

Table A

X AC TC P TR Profit

1 100.00 100.00 55.00 _____ _____

2 90.00 180.00 55.00 _____ _____

4 81.00 324.00 55.00 _____ _____

8 72.90 583.20 55.00 _____ _____

__ _____ _____ 55.00 _____ _____

__ _____ _____ 55.00 _____ _____

__ _____ _____ 55.00 _____ _____

__ _____ _____ 55.00 _____ _____

Steps in Graphic Presentation

Step 1. Draw a vertical axis standing for AC and mark the $ amount of $10 interval.

Step 2. Draw a horizontal axis standing for volume X and mark the number as it is shown in the doubling process.

Step 3. Mark each point where X meets AC.

Step 4. Connect each point to see a downward slope curve to see the relationship between X and a.

Graphic Presentation of Experience Curve Pricing

AutoSave Off Exercise 12 Eckelberry v Search (Alt+Q) Rebecca Smith RS \& - a File Home Insert Draw Design Layout References Mailings Review View Help L $ 1248163264128 34F Clear AutoSave Off Exercise 12 Eckelberry v Search (Alt+Q) Rebecca Smith RS \& - a File Home Insert Draw Design Layout References Mailings Review View Help L $ 1248163264128 34F Clear