Let the average variable cost of production be $20 when 10 units are produced in the first year. In the second year, after the second 10 units have been produced, the average variable cost of production is $12. The slope of the experience curve for this firm is:
A) 85%
B) 60%
C) 175%
D) 12%

Question

Quizplus · Accepted Answer

The experience curve shows that costs decrease as production experience increases. The slope of the experience curve is calculated as the ratio of the new average cost to the old average cost. Here, it is $12/$20 = 0.60 or 60%.

Let the Average Variable Cost of Production Be $20 When