Cost Advantage

• Economies of Scale - A reduction in costs per unit due to increases in efficiency of production as the number of goods being produced increases.
• Fixed Cost of Production - Costs such as plant and equipment, which are relatively fixed, meaning that they do not increase with an increase in the number of units produced.
• General and Administrative Costs (G&A) - Expenses and taxes that are directly related to the general operation of the company, and executive salaries, general support, and taxes related to the overall administration of the company.
• Task Specialization - Breaking a large process into smaller tasks that require specialized knowledge.
• Employee Specialization - Increased efficiency that results when employees perform a narrow range of tasks over and over again, leading them to acquire specialized knowledge that helps them complete the task more efficiently.
• Scale Curve - A graphic representation of the relationship between cost per unit and scale (volume) of production in a given time period.
• Minimum Efficient Scale - The smallest level of output (unit volume) that a plant or firm can produce to minimize its long-run average costs. In a graphic presentation of output/unit volume (x-axis) and cost per unit (y-axis), it is the output level where costs per unit flatten and no longer continue going down with increased output.
• Diseconomies of Scale - An increase in marginal cost when output is increased.
• Economies of Scope - The average total cost of production decreases as a result of increasing the number of different goods produced.
• Cost Advantage Strategy - A strategy in which the unique value offered to customers is lower-priced products or services.
• Learning Curve - The concept that labor costs per unit decrease with increases in volume due to learning. New skills or knowledge can be quickly acquired initially, but subsequent learning becomes much slower.
• Experience Curve - A representation of the relationship between cumulative volume and product cost.
• Law of Experience - Costs per unit decrease with increases in cumulative volume of production.
• Relative Cost - The costs incurred by one company compared to the costs paid by a competitor.
• Proprietary Knowledge - Information that is not public and that is viewed as the property of the holder.
• Inputs - Resources such as people, raw materials, energy, information, or financing that are put into a system (such as an economy, manufacturing plant, computer system, etc.) to obtain a desired output.
• Business Model - The plan and set of activities implemented by a company to offer unique value and generate revenue and make a profit from operations.
• Value Chain - The sequence of all activities that are performed by a firm to turn raw materials into the finished product that is sold to a buyer.