### 5. Costs in the Short Run Versus in the Long RunIke’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 | Average Total Cost (Dollars per bike) ||---------------------|-----------------------------------------------|| | Q = 25 | Q = 50 | Q = 75 | Q = 100 | Q = 125 | Q=150 || 1 | 130 | 100 | 80 | 100 | 140 | 200 || 2 | 165 | 120 | 80 | 80 | 120 | 165 || 3 | 200 | 140 | 100 | 80 | 100 | 130 |Suppose Ike’s Bikes is currently producing 50 bikes per month in its only factory. Its short-run average total cost is __$100__ per bike.Suppose Ike’s Bikes is expecting to produce 50 bikes per month for several years. In this case, in the long run, it would choose to produce bikes using __one factory__.#### Graph InstructionsOn 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 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 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.---This section provides an in ### Cost Analysis and Output Levels#### Instructions for Data Plotting**Note:** Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.#### Graphical Data RepresentationBelow is a graph that represents the relationship between the quantity of bikes produced (on the x-axis) and the average total cost (on the y-axis in dollars per bike). - The y-axis (Average Total Cost in Dollars per bike) ranges from 0 to 200.- The x-axis (Quantity in Bikes) ranges from 0 to 175.There are different Average Total Cost (ATC) curves represented as:- **SRATC₁ (Green triangle marking)**- **SRATC₂ (Purple diamond marking)**- **SRATC₃ (Orange square marking)**- **LRATC (Light blue circle marking)**#### Activity: Identifying Economies of ScaleExamine the long-run average cost (LRATC) curve and indicate whether it exhibits economies of scale, constant returns to scale, or diseconomies of scale for each range of bike production.**Range and Scale Identification Table:**| Range | Economies of Scale | Constant Returns to Scale | Diseconomies of Scale ||------------------------------------|--------------------|---------------------------|-----------------------|| Fewer than 75 bikes per month | ○ | ○ | ○ || Between 75 and 100 bikes per month | ○ | ○ | ○ || More than 100 bikes per month | ○ | ○ | ○ |Select the appropriate option for each range based on the behavior of the LRATC curve in the graph.Understanding the behavior of the cost curves is essential for determining the most efficient scale of production for minimizing costs in the long run.

Quantity SRATC1 SRATC2 SRATC3 LRATC 25 130 165 200 130 50 100 120 140…

Average Total Cost (Dollars per bike) Number of Factories Q = 25 Q = = 50 Q = 75 Q = 100 Q = 125 Q = 150 %3D 1 130 100 80 100 140 200 165 120 80 80 120 165 3 200 140 100 80 100 130 Suppose Ike's Bikes is currently producing 50 bikes per month in its only factory. Its short-run average total cost is $ per bike. Suppose Ike's Bikes is expecting to produce 50 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 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 Ike's Bikes using the blue points (circle symbol).

Average Total Cost (Dollars per bike) Number of Factories Q = 25 Q = = 50 Q = 75 Q = 100 Q = 125 Q = 150 %3D 1 130 100 80 100 140 200 165 120 80 80 120 165 3 200 140 100 80 100 130 Suppose Ike's Bikes is currently producing 50 bikes per month in its only factory. Its short-run average total cost is $ per bike. Suppose Ike's Bikes is expecting to produce 50 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 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 Ike's Bikes using the blue points (circle symbol).

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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