Costs in the short run versus in the long run ke'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 average total cost each month for various levels of production if uses one, two, or three factories. (Note: Q equals the total quantity of bikes produced by all factories.) Number of Factories Q = 100 Q = 200 70 30 115 55 160 80 1 2 3 Average Total Cost (Dollars per bike) Q=300 Q = 400 Q = 500 Q = 600 20 40 80 160 20 20 55 115 40 20 30 70
Costs in the short run versus in the long run ke'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 average total cost each month for various levels of production if uses one, two, or three factories. (Note: Q equals the total quantity of bikes produced by all factories.) Number of Factories Q = 100 Q = 200 70 30 115 55 160 80 1 2 3 Average Total Cost (Dollars per bike) Q=300 Q = 400 Q = 500 Q = 600 20 40 80 160 20 20 55 115 40 20 30 70
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![7. 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 average total cost 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 Q = 100 Q = 200
70
115
160
1
2
3
AVERAGE TOTAL COST (Dollars per bike)
200
Suppose Ike's Bikes is currently producing 500 bikes per month in its only factory. Its average total cost is $
180
160
Suppose Ike's Bikes is expecting to produce 500 bikes per month for several years. In this case, in the long run, it would choose to produce bikes
using
140
On the following graph, plot the three average total cost curves (ATC) for Ike's Bikes from the previous table. Specifically, use the green points
(triangle symbol) to plot its average total cost if it operates one factory (ATC1); use the purple points (diamond symbol) to plot its average total cost
if it operates two factories (ATC₂); and use the orange points (square symbol) to plot its average total cost if it operates three factories (ATC3).
Finally, plot the long-run average cost (LRAC) 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.
(?)
120
100
30
55
80
80
20
Average Total Cost
(Dollars per bike)
Q = 300
Q = 400
40
20
20
0
20
20
40
100 200 300 400 500
QUANTITY OF OUTPUT (Bikes)
600 700
ATC₁
ATC₂
Q = 500
80
55
30
ATC3
O
Q = 600
160
115
70
LRAC
per bike.
O More than 400 bikes per month
Between 300 and 400 bikes per month
O Fewer than 300 bikes per month
In the long run, over which range of output levels does Ike's Bikes experience economies of scale?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5a356784-6ff0-4385-86c6-ad240856bb2b%2F4c8a1b12-41d7-4d39-b92f-89b0d8e1b055%2F65ae73t_processed.jpeg&w=3840&q=75)
Transcribed Image Text:7. 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 average total cost 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 Q = 100 Q = 200
70
115
160
1
2
3
AVERAGE TOTAL COST (Dollars per bike)
200
Suppose Ike's Bikes is currently producing 500 bikes per month in its only factory. Its average total cost is $
180
160
Suppose Ike's Bikes is expecting to produce 500 bikes per month for several years. In this case, in the long run, it would choose to produce bikes
using
140
On the following graph, plot the three average total cost curves (ATC) for Ike's Bikes from the previous table. Specifically, use the green points
(triangle symbol) to plot its average total cost if it operates one factory (ATC1); use the purple points (diamond symbol) to plot its average total cost
if it operates two factories (ATC₂); and use the orange points (square symbol) to plot its average total cost if it operates three factories (ATC3).
Finally, plot the long-run average cost (LRAC) 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.
(?)
120
100
30
55
80
80
20
Average Total Cost
(Dollars per bike)
Q = 300
Q = 400
40
20
20
0
20
20
40
100 200 300 400 500
QUANTITY OF OUTPUT (Bikes)
600 700
ATC₁
ATC₂
Q = 500
80
55
30
ATC3
O
Q = 600
160
115
70
LRAC
per bike.
O More than 400 bikes per month
Between 300 and 400 bikes per month
O Fewer than 300 bikes per month
In the long run, over which range of output levels does Ike's Bikes experience economies of scale?
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