Management Notes Marketing Management & Strategy Notes
Extensive notes on all aspects of Marketing Management & Strategy covered in this module.
Includes extensive textbook and extra reading notes as well as notes on specific concepts.
I received a 1st in this module based on these notes....
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The experience effect is defined as (1- ‘k’). This is the amount by which the cost drops each time production doubles.
You need to start by calculating the % change between the unit cost for x units and the unit cost for 2x units.
The formula for this is:
= (Original Price-New Price)
= (Difference in Price/Original Price)
The answer to this is (1-‘k’).
e.g.
By the time 5,000 had been produced the unit cost would have dropped to 871
And
BY the time 10,000 had been produced the unit cost would have dropped to 803
= (871-803)
= 68
= (68/871)
=0.078
Therefore (1- ‘k’) = 0.078.
You then need to calculate ‘k’.
e.g.
= 0.078 = (1-‘k’)
= ‘k’ = 1-0.078
= 0.922
Therefore ‘k’ is 0.922. The experience effect is 7.8%. I.e. costs drop by 7.8% each time the production doubles.
To Calculate ‘z’:
To compute the ‘z’ component of the experience curve you need to use the following formula:
z = - log(k) / log(2)
Log k is replaced with the log on the answer you calculated for ‘k’ in the above section.
e.g.
z = - log(k)/ log(2)
z = -log(0.922)/log(2)
z = -0.11727
To Calculate the Cost of the First Unit:
To calculate the cost of the first unit you need to use the following formula:
C1= Cn/n-z
In this case use the lowest unit cost you know based on the provided in the information for the number for Cn.
In this case use the number of units that provides the lowest unit cost based on the information provided for the number for n.
In this case use the figure you calculated for ‘z’.
e.g.
C1= Cn/n-z
C1= 803/10,000-0.11727
C1= 2,365
So the cost of the first machine is 2,365
To Calculate the Cost of the nth Unit:
To calculate the cost of the nth unit you need to use the following formula:
C(n) = C1 x n-z
In this case C(n) is the cost of the number of units you want to calculate.
In this case use the number of units you want to calculate the cost for as the number for (n).
In this case use the cost of the first unit as the number for C1.
In this case use the number of units...
Buy the full version of these notes or essay plans and more in our Marketing Management & Strategy Notes.
Extensive notes on all aspects of Marketing Management & Strategy covered in this module.
Includes extensive textbook and extra reading notes as well as notes on specific concepts.
I received a 1st in this module based on these notes....
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