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Experience Curve
An Experience Curve is a concept that suggests that as a company gains more experience in producing a product or service, its production costs decrease. It is based on the idea that with each additional unit produced, the company gains additional knowledge and expertise, which leads to more efficient production processes and lower costs. Here's how it works:
- As a company produces more units of a product or service, it gains a deeper understanding of its production processes and can identify and eliminate inefficiencies.
- As production volumes increase, the company can take advantage of economies of scale and spread fixed costs over a larger number of units, reducing the cost per unit.
- Over time, the company develops more efficient production techniques, standardized processes, and streamlined supply chains, all of which contribute to lower costs.