5. 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 (SRATC) 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 1 2 3 440 620 800 Q = 200 280 380 480 Average Total Cost (Dollars per bike) Q = 300 Q = 400 240 320 240 240 320 240 Q = 500 480 380 280 Q = 600 800 620 440 Suppose Ike's Bikes is currently producing 100 bikes per month in its only factory. Its short-run average total cost is $ per bike. 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 On the following graph, plot the three SRATC curves for Ike's Bikes from the previous table. Specifically, use the green points (triangle symbol) to plo its SRATC 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 SRATC if it operates three factories (SRATC3). 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.
5. 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 (SRATC) 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 1 2 3 440 620 800 Q = 200 280 380 480 Average Total Cost (Dollars per bike) Q = 300 Q = 400 240 320 240 240 320 240 Q = 500 480 380 280 Q = 600 800 620 440 Suppose Ike's Bikes is currently producing 100 bikes per month in its only factory. Its short-run average total cost is $ per bike. 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 On the following graph, plot the three SRATC curves for Ike's Bikes from the previous table. Specifically, use the green points (triangle symbol) to plo its SRATC 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 SRATC if it operates three factories (SRATC3). 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.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:5. 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 (SRATC) 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
Q = 100 Q 200
440
280
380
480
620
800
Average Total Cost
(Dollars per bike)
Q = 300
Q = 400
240
320
240
240
320
240
Q = 500
480
380
280
Q = 600
800
620
440
Suppose Ike's Bikes is currently producing 100 bikes per month in its only factory. Its short-run average total cost is $
per bike.
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
On the following graph, plot the three SRATC curves for Ike's Bikes from the previous table. Specifically, use the green points (triangle symbol) to plot
its SRATC 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 SRATC if it operates three factories (SRATC3). 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.
Transcribed Image Text:Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.
AVERAGE TOTAL COST (Dollars per bike)
800
720
640
560
480
400
320
240
160
80
0
0
100
200
300
400
500
QUANTITY OF OUTPUT (Bikes)
Range
Between 300 and 400 bikes per month
More than 400 bikes per month
Fewer than 300 bikes per month
600
700
Economies of Scale
A
SRATC₁
SRATC₂
SRATC3
LRATC
(?)
Constant Returns to Scale
Diseconomies of Scale
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