Page 5 - Portfolio Analysis
P. 5
b) SPECIALISATION:
As scale of production increases so it becomes possible to split work into
more and more specialist jobs. 'Doing half as much but twice as often
equals the same amount of effort but twice the experience with the task.’ If
the scale of production doubles simultaneously with total experience, then
costs decline by between 10-15% because of learning and a further
10-15% because of specialisation.
c) SCALE:
The capital costs required to finance additional capital diminish as that
capacity grows.
FIGURE 2
THE EXPERIENCE CURVE
Total Cost Curve
Total Unit Cost Prevailing Price
Competitor A Profit
Competitor B
70% Slope
(Same as a Decline
of 30% in Costs as
Experience doubles)
Cumulative Doubling of Volume
