Learning Curves

Suppose you have a production technology that can be characterized by a learning curve. Every time you increase production by one unit, your costs decrease by $6. The first unit costs you $64 to produce. If you receive a request for proposal (RFP) on a project for four units, what is your break-even price? Suppose that if you get the contract, you estimate that you can win another project for two more units. Now what is your break-even price for those two units? Use the table below:

Quantity

Marginal Cost

Total Cost

Average Cost

1

$64

$64

$64

2

$58

$122

$61

3

$52

$174

$58

4

$46

$220

$55

5

$40

$260

$52

6

$34

$294

$49