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CA Intermediate · Financial Management and Strategic Management · Strategic Analysis: Internal Environment

A firm's management finds that its production cost per unit has fallen steadily as cumulative output has increased, because workers have become more skilled and processes more efficient. Which concept in internal analysis does this describe?

This describes the experience curve. As a firm's cumulative output grows, learning, specialisation and process improvements reduce the cost per unit. It differs from the product life cycle, which tracks sales stages, and from strategic group mapping or scenario analysis, which relate to competitors and future environments.

  1. AExperience curveCorrect
  2. BProduct life cycle
  3. CStrategic group mapping
  4. DIndustry scenario analysis

Explanation

The experience curve states that unit cost declines as cumulative volume rises, owing to learning, specialisation and process improvements. The product life cycle describes stages of a product's sales, not cost falling with experience. The other two options concern competitor grouping and future environment scenarios.

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