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Definition: Experience Curve
This concept was developed by the Boston Consulting Group In the 1960's. It is representative of a consistent relationship between the cost of production and the cumulative production quantity (total quantity produced from the first unit to the last).
The experience curve implies that the more experience a firm has in producing a particular product, the lower are its costs.
Please duly note the difference between experience curve and the learning curve. The learning curve describes the observed reduction in the number of required direct labor hours as workers learn their jobs whereas the experience curve not only is applicable to labor intensive situations but also process oriented ones. Also unlike the learning curve, an experience curve takes into account both fixed and variable costs.
The experience curve can be explained by a combination of