Your company, Liber Inc., is considering developing and building a new electric passenger car. Average variable costs of production are expected fall as in Wright's learning curve model. You have the following information:

Total research, development, testing, and evaluation (RDT&E) costs (this is a fixed cost; not a variable cost): $90 million

The following costs are variable costs (they don't include the $90 million) Expected cumulative average cost of the first 100 cars: $160 thousand Expected cumulative average cost of the first 350 cars: $121 thousand

From this information, report the learning rate. Learning rate:

Total # of cars

Total RDT&E Average Fixed Costs Average Variable Cost Average Total Cost Marginal Cost*

1

2

4 ?

8?

16 ?

32

64

128 ?

256

512 ?

1,024

2,048

4,096 ?

8,192

16,384

32,768

65,536

131,072

For the table, you are needing to find the total RDT&E for 8 total cars. You need to find the average fixed costs for 128 cars, you need to find the average variable cost for 16 cars and 4,096 cars. You need to find the average total cost of 4 cars and 512 cars, and the marginal cost of 64 cars and 131,072 cars.

*The marginal cost, given the functional form of the learning curve, is (b+1)*(average variable cost). You will be reporting the values in the shaded cells in Moodle. In addition, answer the following questions:

10. If the price of each car was $39,044, how many cars must Liber Inc. build and sell to cover total costs?

11. If the price of each car was $59,897, how many cars must Liber Inc. build and sell to cover total variable costs?

12. If the price of each car was $40,000, how many cars must be produced such that the marginal cost falls below the price? You may either report the smallest total # of cars from above where MC <= Price, or attempt to calculate this directly using the Excel tool. That will result in two different answers, either of which are acceptable answers.

13. If Liber Inc. can realistically expect to build and sell 16,384 cars, what is the minimum price to cover average total costs?