Name: Phạm Thị Ngọc Hà

Student ID: 1911150524

Class: KDOE307.1

Clarify these terms: economy of scale, experience curve, learning effect.

1. Economy of scale
- Definition: Economies of scale are cost advantages reaped by companies when
production becomes efficient. Companies can achieve economies of scale by
increasing production and lowering costs. This happens because costs are spread
over a larger number of goods. Costs can be both fixed and variable.
- Economies of scale are cost advantages companies experience when production
becomes efficient, as costs can be spread over a larger amount of goods.
- A business's size is related to whether it can achieve an economy of scale—larger
companies will have more cost savings and higher production levels.
- Economies of scale can be both internal and external. Internal economies are
caused by factors within a single company while external factors affect the entire
industry.
2. Experience curve
- Definition: xperience Curve is a concept that states that there is a consistent
relationship between the cumulative production quantity of a company and the
cost of production. The concept implies that the more experienced a company is in
manufacturing a specific product, the lower its cost of production.
- When the total production capacity (from the first unit to the last) doubles, the
value-added costs decline by a constant percentage. The value-added costs include
the cost of manufacturing, marketing, distribution, and administration.
- When representing an experience curve on a graph, the cost per unit of production
is plotted on the Y-axis, while the cumulative production quantity is plotted on the
X-axis. The unit cost of production includes the cost incurred by the company to
add value to the product but excludes the cost of purchasing the materials.
- The curve shows that as the company increases its overall cumulative production
quantity, the unit costs decline at a constant rate. The decline goes on without limit
and is surprisingly consistent, even from one industry to another. In some cases,
the absence of experience in some industries may be viewed as an outcome of
mismanagement.
- The experience curve of lower unit costs tends to become stronger for large
businesses that are market leaders in their respective industries.
3. Learning Effect
- Definition: A learning curve is a concept that graphically depicts the relationship
between the cost and output over a defined period of time, normally to represent
the repetitive task of an employee or worker.

- In business, the slope of the learning curve represents the rate in which learning
new skills translates into cost savings for a company.
- The steeper the slope of the learning curve, the higher the cost savings per unit of
output.