11. Costs in the short run versus in the long run Ike's Bikes is a major manufacturer of bicycles. Currently, the company produces bikes using only one factory. However, it is considering expanding production to two or even three factories. The following table shows the company's short-run average total cost each month for various levels of production if it uses one, two, or three factories. (Note:Q equals the total quantity of bikes produced by all factories.) Number of Factories Q = 100 520 1 2 3 AVERAGE TOTAL COST (Dollars per bike) 800 720 640 560 Suppose Ike's Bikes is currently producing 100 bikes per month in its only factory. Its short-run average total cost is S 480 400 Suppose Ike's Bikes is expecting to produce 100 bikes per month for several years. In this case, in the long run, it would choose to produce bikes using 320 On the following graph, plot the three short-run average total cost curves (SRATC) for Ike's Bikes from the previous table. Specifically, use the green points (triangle symbol) to plot its short-run average total cost if it operates one factory (SRATC₁); use the purple points (diamond symbol) to plot its short-run average total cost if it operates two factories (SRATC₂); and use the orange points (square symbol) to plot its short-run average total cost if it operates three factories (SRATC₂). Finally, plot the long-run average total cost (LRATC) for Ike's Bikes using the blue points (circle symbol). Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically. 160 80 660 800 0 Q = 200 400 480 560 0 100 Average Total Cost (Dollars per bike) Q = 300 Q = 400 320 400 320 400 200 300 400 500 QUANTITY OF OUTPUT (Bikes) 320 320 600 700 D SRATC Q = 500 560 480 400 SRATC₂ SRATC O Q = 600 800 LRATC 660 520 (?) per bike. In the long run, over which range of output levels does Ike's Bikes experience diseconomies of scale? O Between 300 and 400 bikes per month O More than 400 bikes per month O Fewer than 300 bikes per month
11. Costs in the short run versus in the long run Ike's Bikes is a major manufacturer of bicycles. Currently, the company produces bikes using only one factory. However, it is considering expanding production to two or even three factories. The following table shows the company's short-run average total cost each month for various levels of production if it uses one, two, or three factories. (Note:Q equals the total quantity of bikes produced by all factories.) Number of Factories Q = 100 520 1 2 3 AVERAGE TOTAL COST (Dollars per bike) 800 720 640 560 Suppose Ike's Bikes is currently producing 100 bikes per month in its only factory. Its short-run average total cost is S 480 400 Suppose Ike's Bikes is expecting to produce 100 bikes per month for several years. In this case, in the long run, it would choose to produce bikes using 320 On the following graph, plot the three short-run average total cost curves (SRATC) for Ike's Bikes from the previous table. Specifically, use the green points (triangle symbol) to plot its short-run average total cost if it operates one factory (SRATC₁); use the purple points (diamond symbol) to plot its short-run average total cost if it operates two factories (SRATC₂); and use the orange points (square symbol) to plot its short-run average total cost if it operates three factories (SRATC₂). Finally, plot the long-run average total cost (LRATC) for Ike's Bikes using the blue points (circle symbol). Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically. 160 80 660 800 0 Q = 200 400 480 560 0 100 Average Total Cost (Dollars per bike) Q = 300 Q = 400 320 400 320 400 200 300 400 500 QUANTITY OF OUTPUT (Bikes) 320 320 600 700 D SRATC Q = 500 560 480 400 SRATC₂ SRATC O Q = 600 800 LRATC 660 520 (?) per bike. In the long run, over which range of output levels does Ike's Bikes experience diseconomies of scale? O Between 300 and 400 bikes per month O More than 400 bikes per month O Fewer than 300 bikes per month
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:11. Costs in the short run versus in the long run
Ike's Bikes is a major manufacturer of bicycles. Currently, the company produces bikes using only one factory. However, it is considering expanding
production to two or even three factories. The following table shows the company's short-run average total cost each month for various levels of
production if it uses one, two, or three factories. (Note:Q equals the total quantity of bikes produced by all factories.)
Number of Factories
1
2
3
AVERAGETOTAL COST (Dollars per bike)
800
720
640
560
480
400
320
240
160
Average Total Cost
(Dollars per bike)
Q = 100 Q = 200 Q = 300 Q = 400 Q = 500 Q = 600
po
320
800
320
400
Suppose Ike's Bikes is currently producing 100 bikes per month in its only factory. Its short-run average total cost is
80
0
520
Suppose Ike's Bikes is expecting to produce 100 bikes per month for several years. In this case, in the long run, it would choose to produce bikes
using
0
660
On the following graph, plot the three short-run average total cost curves (SRATC) for Ike's Bikes from the previous table. Specifically, use the
green points (triangle symbol) to plot its short-run average total cost if it operates one factory (SRATC₁); use the purple points (diamond symbol) to
plot its short-run average total cost if it operates two factories (SRATC₂); and use the orange points (square symbol) to plot its short-run average
total cost if it operates three factories (SRATC₂). Finally, plot the long-run average total cost (LRATC) for Ike's Bikes using the blue points (circle
symbol).
Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.
(?)
100
800
400
480
560
200
400
500
300
QUANTITY OF OUTPUT (Bikes)
400
320
600
O Between 300 and 400 bikes per month
O More than 400 bikes per month
O Fewer than 300 bikes per month
320
700
SRATC
560
SRATC₂2
-0-
480
400
SRATC
660
520
LRATC
per bike.
In the long run, over which range of output levels does Ike's Bikes experience diseconomies of scale?
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