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 Mesa. 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 = 50 Q = 100 220 140 310 190 400 HN 1 2 3 240 Average Total Cost (Dollars per scooter) Q = 150 Q = 200 120 160 120 160 120 120 Q = 250 240 190 140 Q = 300 400 310 220 Suppose Scooter's Scooters is currently producing 300 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 300 scooters per month for several years. In this case, in the long run, it would choose to produce scooters using
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 Mesa. 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 = 50 Q = 100 220 140 310 190 400 HN 1 2 3 240 Average Total Cost (Dollars per scooter) Q = 150 Q = 200 120 160 120 160 120 120 Q = 250 240 190 140 Q = 300 400 310 220 Suppose Scooter's Scooters is currently producing 300 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 300 scooters per month for several years. In this case, in the long run, it would choose to produce scooters using
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter4: Extent (how Much) Decisions
Section: Chapter Questions
Problem 3MC
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Transcribed Image Text: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 (SRATC₂). 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.
AVERAGE TOTAL COST (Dollars per scooter)
400
360
320
280
240
200
160
120
80
40
0
0
50
100
150 200
QUANTITY (Scooters)
250 300 350
Range
More than 200 scooters per month
Between 150 and 200 scooters per month
Fewer than 150 scooters per month
SRATC,
SRATC₂
-O-
SRATC
LRATC
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.
Economies of Scale Constant Returns to Scale Diseconomies of Scale
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 Mesa. 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 = 50 Q = 100
220
140
310
190
400
HN
1
2
3
240
Average Total Cost
(Dollars per scooter)
Q = 150
Q = 200
120
160
120
160
120
120
Q = 250
240
190
140
Q = 300
400
310
220
Suppose Scooter's Scooters is currently producing 300 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 300 scooters per month for several years. In this case, in the long run, it would choose to produce
scooters using
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