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

Suraj Foods enters a new market and finds that its cost per unit falls steadily as it repeats production and workers become more skilled and efficient with cumulative output. Which concept of the internal analysis best explains this?

The experience curve explains it. As cumulative production grows, learning, specialisation and process improvements reduce cost per unit over time, giving the firm a cost advantage over less experienced competitors.

  1. AExperience curveCorrect
  2. BValue chain support activity
  3. CProduct life cycle decline stage
  4. DSWOT threat

Explanation

The experience curve states unit costs fall as cumulative output rises because of learning, specialisation and efficiency gains. The value chain is a framework of activities, not a cost-decline effect with volume. Decline stage and threat do not explain learning-based cost reduction.

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