A firm produces 100 units at a cost of £10 per unit. According to the experience curve effect, if the firm produces 200 units, how much would each unit cost to produce?

Question

Quizplus · Accepted Answer

The experience curve effect suggests that each time the total quantity of units produced doubles, the cost per unit of production falls by a fixed percentage (typically around 20-30%). Therefore, if producing 100 units costs £10 per unit, producing 200 units (doubling the quantity) would likely reduce the cost per unit to somewhere between £7 and £8, assuming a 20-30% reduction.

A Firm Produces 100 Units at a Cost of £10