* CENGAGE MINDTAP Homework (Ch 13) 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. Hovwever, 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.) Average Total Cost (Dollars per bike) Number of Factories Q = 75 Q = 150 Q = 225 Q= 300 Q = 375 Q = 450 110 80 60 80 120 180 2 145 100 60 60 100 145 3 180 120 80 60 80 110 Suppose Ike's Bikes is currently producing 375 bikes per month in its only factory. Its short-run average total cost is s per bike. Suppose Ike's Bikes is expecting to produce 375 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 (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 (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.
* CENGAGE MINDTAP Homework (Ch 13) 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. Hovwever, 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.) Average Total Cost (Dollars per bike) Number of Factories Q = 75 Q = 150 Q = 225 Q= 300 Q = 375 Q = 450 110 80 60 80 120 180 2 145 100 60 60 100 145 3 180 120 80 60 80 110 Suppose Ike's Bikes is currently producing 375 bikes per month in its only factory. Its short-run average total cost is s per bike. Suppose Ike's Bikes is expecting to produce 375 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 (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 (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.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:* CENGAGE MINDTAP
Homework (Ch 13)
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.)
Average Total Cost
(Dollars per bike)
Number of Factories
Q = 75
Q = 150
Q = 225
Q = 300
Q = 375
Q = 450
1
110
80
60
80
120
180
2
145
100
60
60
100
145
3
180
120
80
60
80
110
Suppose Ike's Bikes is currently producing 375 bikes per month in its only factory. Its short-run average total cost is S
per bike.
Suppose Ike's Bikes is expecting to produce 375 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 (SRATC); use the purple points (diamond symbol) to plot its SRATC curve if it operates two factories (
s one
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.
Transcribed Image Text:(?)
180
SRATC,
160
140
120
SRATC,
SRATC,
60
40
LRATC
75
150
225
300
375
450
525
QUANTITY (Bikes)
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 bike production.
Range
Economies of Scale
Constant Returns to Scale
Diseconomies of Scale
Fewer than 225 bikes per month
Between 225 and 300 bikes per month
More than 300 bikes per month
AVERAGE TOTAL COST(Dollars per bke)
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