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Hello Sir,
can you tell me how the learing rate equation has been derivedAt 10000 variable cost effected by learning = $30
At 40000 variable cost affected by learnng = $22.71let the learning rate be r
30 ( r *r ) =22.71
r*r = .757
r = .87
thus learning rate = 87%
I dont understand how it has been solved
thanksThe learning rate applies to the average cost per unit.
So…..if the learning rate is r, then when you double production (from 10000 to 20000) then the average cost per unit will be r x what is was before. In this case, 30 x r
When you double production again (from 20,000 up to 40,000) then again the average cost will be r x what the average cost was before. So in this case, (30 x r) x r. This is the same as 30 x r^2
Since the average cost in this question ends up as 22.71, then 30 x r^2 = 22.71
So, r = the square root of 22.71/30 which comes to 0.87 or 87%
I have just come across this question in Mock Exam 2. There is a second part to it of working out the optimum selling price, if you have a copy of this and can let me know how you work it out that would be great as I cannot understand the answer in the back of the book.
Thanks 🙂
Sorry Chloe, but I am spending six hours a day answering questions and I really can’t explain this one any better than the BPP answer/
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