The manufacturing cost of a product follows an experience curve in which the cost per unit becomes 80% each time cumulative production doubles (an 80% learning rate). If the cost per unit is ¥1,000 when cumulative production reaches 100,000 units, which is the cost per unit when cumulative production reaches 800,000 units?

Answer: A. ¥512

From 100,000 to 800,000 units, cumulative production doubles three times: 100,000 → 200,000 → 400,000 → 800,000. The cost becomes 80% each time, so it is 1,000 × 0.8³ = ¥512. The experience curve expresses the effect of costs falling as cumulative production grows, through worker learning, process improvement, higher yield and the like, and it is distinguished from economies of scale, which come from the size of production itself. The fact that companies that gain a large share early and build up cumulative production find it easier to cut costs also underlies the ideas of PPM and the cost leadership strategy.

• A. Correct. Multiply by 0.8 three times, once for each of the three doublings.
• B. This counts only two doublings (1,000 × 0.8²). From 100,000 to 800,000 units is eight times, which is three doublings.
• C. This is the value after only one doubling.