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 = 200 Q = 300 Q = 400 Q = 500 Q = 600 1 440 280 240 320 480 800 2 620 380 240 240 380 620 3 800 480 320 240 280 440 Suppose Ike’s Bikes is currently producing 100 bikes per month in its only factory. Its short-run average total cost is ? per bike. Suppose Ike’s Bikes is expecting to produce 100 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). 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 (SRATC1SRATC1); use the purple points (diamond symbol) to plot its SRATC curve if it operates two factories (SRATC2SRATC2); and use the orange points (square symbol) to plot its SRATC curve if it operates three factories (SRATC3SRATC3). 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. SRATC1SRATC2SRATC3LRATC0100200300400500600700800720640560480400320240160800AVERAGE TOTAL COST (Dollars per bike)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 300 bikes per month More than 400 bikes per month Between 300 and 400 bikes per month

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 = 200 Q = 300 Q = 400 Q = 500 Q = 600 1 440 280 240 320 480 800 2 620 380 240 240 380 620 3 800 480 320 240 280 440 Suppose Ike’s Bikes is currently producing 100 bikes per month in its only factory. Its short-run average total cost is ? per bike. Suppose Ike’s Bikes is expecting to produce 100 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). 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 (SRATC1SRATC1); use the purple points (diamond symbol) to plot its SRATC curve if it operates two factories (SRATC2SRATC2); and use the orange points (square symbol) to plot its SRATC curve if it operates three factories (SRATC3SRATC3). 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. SRATC1SRATC2SRATC3LRATC0100200300400500600700800720640560480400320240160800AVERAGE TOTAL COST (Dollars per bike)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 300 bikes per month More than 400 bikes per month Between 300 and 400 bikes per month

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1 . Costs in the short run versus in the long run

		Average Total Cost	(Dollars per bike)
Number of Factories	Q = 200	Q = 300	Q = 400	Q = 500	Q = 600
1	440	280	240	320	480	800
2	620	380	240	240	380	620
3	800	480	320	240	280	440

Suppose Ike’s Bikes is currently producing 100 bikes per month in its only factory. Its short-run average total cost is ?

per bike.

Suppose Ike’s Bikes is expecting to produce 100 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).

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 (SRATC1SRATC1); use the purple points (diamond symbol) to plot its SRATC curve if it operates two factories (SRATC2SRATC2); and use the orange points (square symbol) to plot its SRATC curve if it operates three factories (SRATC3SRATC3). 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.

SRATC1SRATC2SRATC3LRATC0100200300400500600700800720640560480400320240160800AVERAGE TOTAL COST (Dollars per bike)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.