Question

Suppose you audit your records and find that the average cost of producing the first 50 units of a machine was $1000 and the average cost of producing the first 100 units was $800. What is the value of b (the coefficient used in experience curve calculations)?

Answer 1

First put the values in the form of a table and calculate basic log as given below:

Now to calculate b use the following formula:

where n = number of observations

Q is cummulative units

C is average cost

Please note: There are other ways to calculate b using different methods. The answer will vary to some extent with different methods used. However, It would not be a draastic variation.

Also, The Log values in the table are Log to the base 10.