CA Intermediate · Financial Management and Strategic Management · Strategic Analysis: Internal Environment
Kaveri Appliances, a Chennai company, notices that its manufacturing cost per unit has fallen steadily as cumulative production has grown, because workers have become more skilled and processes have been refined. Which concept explains this cost reduction?
The concept is the experience curve. It says per-unit cost declines as cumulative production rises, because learning, specialisation and process improvements make the firm more efficient over time. It is tied to accumulated volume rather than to a single capability, grouping of rivals or splitting of activities.
- AExperience curveCorrect
- BCore competence
- CValue chain disaggregation
- DStrategic group mapping
Explanation
The experience curve states that unit cost falls as cumulative output rises through learning, specialisation and process improvements. Core competence concerns a collective capability, not cost falling with cumulative volume.
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