What does the experience curve effect imply about costs as cumulative production increases?

• A. Prices increase with production
• B. Costs decrease with cumulative production
• C. Prices remain constant
• D. Costs increase with time

Answer: (B)

The experience curve shows that unit costs fall as cumulative production grows, because the organization learns how to do things more efficiently. With more production, workers gain speed, setups become quicker, processes are refined, defects drop, and waste is reduced. All of these improvements lower the cost to produce each unit, even as total output increases. Often the idea is that when cumulative output doubles, the average cost per unit drops by a roughly constant percentage, though the exact rate varies by industry. So, as cumulative production rises, costs per unit decrease. The other statements describe changes that aren’t what this curve portrays—it's about cost per unit linked to accumulated production, not about prices or costs increasing over time.