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 FactoriesAverage Total Cost(Dollars per bike)Q = 25Q = 50Q = 75Q = 100Q = 125Q = 150144032024032048072025804002402404005803720480320240320440 Suppose Ike’s Bikes is currently producing 125 bikes per month in its only factory. Its short-run average total cost is................................$ per bike. Suppose Ike’s Bikes is expecting to produce 125 bikes per month for several years. In this case, in the long run, it would choose to produce bikes using (one factory/two factories/three factories).

We can clearly represent the table as follows Here, the left most column represents the number of…

Answered: Costs in the short run versus in the…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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	Average Total Cost
(Dollars per bike)
Q = 25	Q = 50	Q = 75	Q = 100	Q = 125	Q = 150
1	440	320	240	320	480	720
2	580	400	240	240	400	580
3	720	480	320	240	320	440

Suppose Ike’s Bikes is currently producing 125 bikes per month in its only factory. Its short-run average total cost is................................$ per bike.

Suppose Ike’s Bikes is expecting to produce 125 bikes per month for several years. In this case, in the long run, it would choose to produce bikes using (one factory/two factories/three factories).

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