A Contractor Builds Large Ships for the Department of Defence

Essay

A contractor builds large ships for the Department of Defence. A recent contract called for 12 amphibious landing platforms. It was originally estimated that the first of these would cost $1 billion and that 80% learning would be appropriate. In fact, the first ship cost $1.6 billion and the second $1.12 billion. What is the revised learning rate? What will be the total cost of the twelve ships? Is it higher or lower than the original estimates? If the defence department cuts the contract from 12 ships to 9, what happens to the average cost per ship?