- October 19, 2015 at 10:17 pm #277680gabbi08Member
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Dear Mr Moffat,
Could you kindly help with below question.
The Q organization develops a new products that are in high demand.
Market research has discovered that the price demand relationship for n anew DVD prduct during the initial launch phase will be as follows:
Production of the DVD recorder would occur in batches of 10,000 units and the production director believes that 50% of the variable manufacturing cost would be affected by a learning curve. This would apply to each batch produced and continue at a constant rate of learning up to a production volume of 40,000 units when the learning would be complete. The production director estimates that the unit variable manufacturing cost of the first batch would be $60($30 of which is subject to the effect of the learning curve, and $30 of which is unaffected), whereas the average unit variable manufacturing cost of all four batches would be $52.71
a) Calculate the rate of leaning that is expected by the production director.
b) Calculate the optimum price at which Q should sell the DVD recorder in order to maximise its profit during the initial launch.
Cumulative n. Of unit T v.c. Affected by L Not effected by L
10,000 60 30 30
20,000 56,10 26,10 30
30,000 54,06 24,06 30
40,000 52,71 22,71 30
Calculate the rate of learning
At 10,000 units variable cost affected by learning = $30
At 40,000 units variable cost affected by learning = 22,71
Let the rate of learning be R
22.71/30 0 r2
r = 0.87
(Note. Also using the average costs per unit for 10,000 and 20,000 units 26.10/30= r therefore r is 0.87) This note was provided in the answer, but I still don t understand where 26,10 come from
Variable cost affected by learning for 20.000 units
30r = 30*0,87=26,10
To calculate the variable cost affected by learning for 30.000 units requires the use of a formula for learning curve
30*3-0,201 ( log0,87/log2)
Could you please explain the answer of this question? I listened to the lecture and I didn t have any problem to answer other questions about the learning curve, but I don’ t understand the logic behind the working provided.
Thanks in advance for your help
GabriellaOctober 20, 2015 at 7:24 am #277737John MoffatKeymaster
- Topics: 57
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I assume you are happy about the first part of the answer (calculating the rate of learning to be 0.87, using the doubling rule).
If you have typed the note the same way as in the answer then it does not really make sense. There is not enough information to calculate r in any other way that in the first part of the answer (i.e. from 40,000 and 10,000 units).
However once you have calculate r, then you are able to calculate what the costs would be for 20,000 units (using the doubling rule) and for 30,000 units (using the formula).
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