Asked by Sarah Gittins on Jul 12, 2024
Verified
Production of the DeLorean car, made famous in the film Back to the Future, never got above 25,000 units during its lifetime. Automobile industry analysts estimate that production of this car needed to reach around 300,000 units to achieve the ________, which refers to a decrease in unit cost as product volume increases.
A) slotting allowance benefit
B) price fixing return
C) improvement value effect
D) experience curve effect
E) cumulative bundling benefit
Experience Curve Effect
Refers to the drop in unit cost as the accumulated volume sold increases; as sales continue to grow, the costs continue to drop, allowing even further reductions in the price.
Unit Cost
The cost incurred to produce, acquire, or sell one unit of a product or service, calculated by dividing total costs by the number of units.
Product Volume
The quantity of units of a particular product sold or produced.
- Identify the various kinds of expenses (variable, fixed, total) and understand how they fluctuate in different business contexts.
Verified Answer
MH
Maisyarah HawafiJul 15, 2024
Final Answer :
D
Explanation :
The experience curve effect refers to the decrease in unit cost as product volume increases due to increased efficiency in the production process and economies of scale. The estimated production numbers needed for this effect to take place for the DeLorean car was around 300,000 units, which was never reached. Choice A (slotting allowance benefit) and Choice E (cumulative bundling benefit) are not relevant to this situation. Choice B (price fixing return) is not a commonly used term in the automobile industry, and Choice C (improvement value effect) does not accurately describe the concept of decreasing unit costs through increased production volume.
Learning Objectives
- Identify the various kinds of expenses (variable, fixed, total) and understand how they fluctuate in different business contexts.