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- This topic has 1 reply, 2 voices, and was last updated 7 years ago by John Moffat.

- AuthorPosts
- October 19, 2015 at 10:17 pm #277680
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:Price Demand

$ Units100 10000

80 20000

69 30000

62 40000Production 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

Require

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.Answer provided:

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 30Calculate the rate of learning

At 10,000 units variable cost affected by learning = $30

At 40,000 units variable cost affected by learning = 22,71Let the rate of learning be R

22.71/30 0 r2

r2= 0.757

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=26,10To 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)

=24.06Could 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 #277737I 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). - AuthorPosts

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