Question

Use the experience curve concept to explain how efficiencies of an automobile assembly plant, or any other manufacturing enterprise, can change with the passage of time and accumulation of production volume. (15 points)

Answer 1

The experience curve is a graphical representation of the inverse relationship that exists between the value-added cost of the product and the experience gained by the company which is obtained from manufacturing that product. This is a curve which shows that as a greater amount of production or ore tie is spent by a firm to produce a certain product, the company tends to have greater experience of producing that product and therefore the quality, and efficiency of the production improves.

Thus if take the example of an automobile assembly plant, or any other manufacturing enterprise, when the workers working in that plant starts to produce more and more quantities, they start learning how to use the material in a more effective manner and by gaining the experience of working on the similar machine, process and raw material they start to have expertise in that activity or process. It helps them to reduce wastage, improve productivity and efficiency. In fact, they can produce more quantities in less time with higher quality.