Given a 90% learning curve, what would be the cost of the 8th unit if the 4th unit produced cost $100?

Given a 90% learning curve, what would be the cost of the 8th unit if the 4th unit produced cost $100?

• A. $80
• B. $90
• C. $70
• D. $100

Answer: (B)

To understand how to arrive at the cost of the 8th unit given a 90% learning curve, it’s important to grasp the concept of the learning curve itself. A 90% learning curve means that each time the production quantity doubles, the cost of production decreases to 90% of the previous cost. Starting with the given information that the 4th unit costs $100, we will calculate the costs of subsequent units. Since we want to determine the cost of the 8th unit, we need to first calculate the cost of the 6th unit to work our way up. 1. The cost of the 2nd unit can be derived from the relationship between the 4th and 2nd unit. Because the production doubles between the 2nd and 4th unit: - Cost of the 2nd unit = Cost of the 4th unit x learning percentage - Cost of the 2nd unit = $100 x 0.9 = $90 2. We now need the cost of the 1st unit to move to the 6th and then 8th units: - Using the same rationale above, the cost of the 1st unit can

To understand how to arrive at the cost of the 8th unit given a 90% learning curve, it’s important to grasp the concept of the learning curve itself. A 90% learning curve means that each time the production quantity doubles, the cost of production decreases to 90% of the previous cost.

Starting with the given information that the 4th unit costs $100, we will calculate the costs of subsequent units. Since we want to determine the cost of the 8th unit, we need to first calculate the cost of the 6th unit to work our way up.

1. The cost of the 2nd unit can be derived from the relationship between the 4th and 2nd unit. Because the production doubles between the 2nd and 4th unit:

• Cost of the 2nd unit = Cost of the 4th unit x learning percentage

• Cost of the 2nd unit = $100 x 0.9 = $90

2. We now need the cost of the 1st unit to move to the 6th and then 8th units:

• Using the same rationale above, the cost of the 1st unit can