An analyst predicts that an 80 percent experience curve should be an accurate pre- dictor of the cost of producing a new product. Suppose that the cost of the first unit is $1,000. What would the analyst predict is the cost of producing the a. 100th unit? b. 10,000th unit?

An analyst predicts that an 80 percent experience curve should be an accurate pre- dictor of the cost of producing a new product. Suppose that the cost of the first unit is $1,000. What would the analyst predict is the cost of producing the a. 100th unit? b. 10,000th unit?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section14.A: Breakeven Analysis

Problem 4P

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Question

37. An analyst predicts that an 80 percent experience curve should be an accurate pre-
dictor of the cost of producing a new product. Suppose that the cost of the first unit
is $1,000. What would the analyst predict is the cost of producing the
a. 100th unit?
b. 10,000th unit?

Expert Solution

Step 1

The cost of producing the unit can be find out by using the following formula:

$Y (u) = a u^{- b}$

where,

a = Cost of first unit

u = Number of unit

b = Percentage of experience curve

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