Part I

The purpose of this exercise is to build familiarity with creating and interpreting experience curves.

At a family reunion, two rivalrous siblings named Joan and Jack, who each started their own company, were debating. Both companies has just completed their second year $($Year $2)$ of operations and both siblings claimed their company enjoyed a variable cost advantage.

The older sibling, Joan claimed her two$-$year old company sold $5,000$ units in Year $1$ and $6,000$ units in Year $2,$ and lowered variable costs per unit from $$25$ in Year $1$ to $$22$ in Yfar $2.$ Joan also bragged that her her company would double its Year $1$ units sales in Year $5.$ TSee table below.$)$ Based on these performance results Joan argued that her company clearly enjoyed a variable cost advantage over Jack's company.

After listening patiently Jack said his company, not Joan's, had the variable cost advantage because it sold $3,500$ units in Year $1$ and $4,000$ in Year $2$ and reduced variable costs per unit from $$26$ in Year $1$ to $$22\mathrm{.}50$ in Year $2,$ and would double sales to $7,000$ units in Year $5.$

In this exercise's Excel spreadsheet, enter the data from the table and follow the instructions for entering formulas given in the green shaded cells. Then analyze the results and answer the following questions.

A$.$ Which company enjoyed a variable cost advantage at the end of Year $2?$ How large was that cost advantage? What evidence tells us this?

B$.$ If both companies sold their product at a price of $$34,$ which company was more profitable at the end of Year $2?$ What evidence tells us this?

C$.$ In Year $5,$ when both companies will double Year $1$ sales, which company will have a variable cost advantage? How large will that advantage be$?$

$\backslash$table$[[,,$Year $1,$Year $2,$Year $3,$Year $4,$Year $5],[\backslash$table$[[$Joan$\text{'}$s$],[$Company$]],$Unit sales,$5,000,6,000,7,000,8,000,10,000],[,\backslash$table$[[$Unit variable$],[$cost$]],$$$25\mathrm{.}00,$$$22\mathrm{.}00,?,?,?$