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KimWarren

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How does one quantify cost efficiency, for example, experience curve, learning curve, capacity utilization, residual efficiency?
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KimWarren

Subject Expert
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Posts: 107
Reply with quote  #2 
Cost efficiency usually implies specific ratios, such as cost-per-unit-output or cost-%-of-revenue. The models should simply calculate what $ costs actually are then work out the resulting ratios.

Some of the items you mention are directly involved in these calculations - it is essential, for example, to include capacity utilisation in any calculation of unit-cost through the normal working-out of how fixed costs are spread across larger volumes of output. [Not sure what you mean by 'residual efficiency'?

Experience-curve and learning curve are a bit different ... these take a more aggregated view of product-cost, and capture how unit-cost in total falls as cumulative output grows. We can model this mechanism - it is included in the model at http://sdl.re/tec2product 
for example - but note that this is a quite different approach than modeling the actual make-up of those aggregated costs. It would be possible to build a much more detailed and accurate model of how 'experience curve' works in any particular case if you have full details of all relevant cost drivers.
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