5. Costs in the short run versus in the long run Scooter's Scooters is a large American manufacturer of electric scooters operating out of Detroit. Currently, the company produces all of its scooters using a single manufacturing facility, its factory in town. Recently, management has been considering expanding operations to one or two additional factories. The following table presents the manufacturer's monthly short-run average total cost (SRATC) for various levels of production if it operates out of one, two, or three factories. (Note: Q equals the total quantity of scooters produced by all factories.) Number of Factories Q = 25 1 130 2 165 200 3 Q = 50 100 120 140 Average Total Cost (Dollars per scooter) Q = 75 Q = 100 Q = 125 80 100 80 100 80 80 140 120 100 Q = 150 200 165 130 Suppose Scooter's Scooters is currently producing 25 scooters per month in its only factory. Its short-run average total cost is S per scooter. Suppose Scooter's Scooters is expecting to produce 25 scooters per month for several years. In this case, in the long run, it would choose to produce scooters using On the following graph, plot the three SRATC curves for Scooter's Scooters from the previous table. Specifically, use the green points (triangle symbol) to plot its SRATC curve if it operates one factory (SRATC); use the purple points (diamond symbol) to plot its SRATC curve if it operates two factories (SRATC₂); and use the orange points (square symbol) to plot its SRATC curve if it operates three factories (SRATC). Finally, plot the long-run average total cost (LRATC) curve for Scooter's Scooters 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 Scooter's Scooters is a large American manufacturer of electric scooters operating out of Detroit. Currently, the company produces all of its scooters using a single manufacturing facility, its factory in town. Recently, management has been considering expanding operations to one or two additional factories. The following table presents the manufacturer's monthly short-run average total cost (SRATC) for various levels of production if it operates out of one, two, or three factories. (Note: Q equals the total quantity of scooters produced by all factories.) Number of Factories Q = 25 1 130 2 165 200 3 Q = 50 100 120 140 Average Total Cost (Dollars per scooter) Q = 75 Q = 100 Q = 125 80 100 80 100 80 80 140 120 100 Q = 150 200 165 130 Suppose Scooter's Scooters is currently producing 25 scooters per month in its only factory. Its short-run average total cost is S per scooter. Suppose Scooter's Scooters is expecting to produce 25 scooters per month for several years. In this case, in the long run, it would choose to produce scooters using On the following graph, plot the three SRATC curves for Scooter's Scooters from the previous table. Specifically, use the green points (triangle symbol) to plot its SRATC curve if it operates one factory (SRATC); use the purple points (diamond symbol) to plot its SRATC curve if it operates two factories (SRATC₂); and use the orange points (square symbol) to plot its SRATC curve if it operates three factories (SRATC). Finally, plot the long-run average total cost (LRATC) curve for Scooter's Scooters 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
Scooter's Scooters is a large American manufacturer of electric scooters operating out of Detroit. Currently, the company produces all of its scooters
using a single manufacturing facility, its factory in town. Recently, management has been considering expanding operations to one or two additional
factories. The following table presents the manufacturer's monthly short-run average total cost (SRATC) for various levels of production if it operates
out of one, two, or three factories. (Note: Q equals the total quantity of scooters produced by all factories.)
Number of Factories Q = 25
1
130
2
165
3
200
Q = 50
100
120
140
Average Total Cost
(Dollars per scooter)
Q = 75 Q = 100
80
80
100
100
80
80
Q = 125
140
120
100
Q = 150
200
165
130
Suppose Scooter's Scooters is currently producing 25 scooters per month in its only factory. Its short-run average total cost is
per scooter.
Suppose Scooter's Scooters is expecting to produce 25 scooters per month for several years. In this case, in the long run, it would choose to produce
scooters using
On the following graph, plot the three SRATC curves for Scooter's Scooters from the previous table. Specifically, use the green points (triangle symbol)
to plot its SRATC curve if it operates one factory (SRATC1); use the purple points (diamond symbol) to plot its SRATC curve if it operates two
factories (SRATC₂); and use the orange points (square symbol) to plot its SRATC curve if it operates three factories (SRATC3). Finally, plot the
long-run average total cost (LRATC) curve for Scooter's Scooters 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 scooter)
200
180
160
140
120
100
80
60
20
0
D
25
50
75
100
QUANTITY (Scooters)
Range
Fewer than 75 scooters per month
Between 75 and 100 scooters per month
125
More than 100 scooters per month
150
175
In the following table, indicate whether the long-run average cost curve exhibits economies of scale, constant returns to scale, or diseconomies of
scale for each range of scooter production.
OO
SRATC₁
O
SRATC₂
SRATC
O
LRATC
Economies of Scale Constant Returns to Scale
O
0
Diseconomies of Scale
O
O
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