It took MegaTech, Inc. 100,000 labor-hours to produce the first of several oil-drilling rigs for Antarctic exploration. Your company, Natural Resources, Inc., has agreed to purchase the fifth (steady state) oil-drilling rig from MegaTech’s manufacturing yard. Assume that MegaTech experiences a learning rate of 80%. At a labor rate of $35 per hour, what should you, as the purchasing agent, expect to pay for the fifth unit?
TN = T1C
Where TN = Time needed to produce the Nth unit
T1 = Time needed to produce the first unit
C = Learning curve coefficient