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 Q = 50 Q = 100 1 220 140 2 310 190 3 400 240 Average Total Cost (Dollars per bike) Q = 150 Q = 200 120 160 120 120 160 120 Q = 250 240 190 140 Q = 300 400 310 220 Suppose Ike's Bikes is currently producing 300 bikes per month in its only factory. Its short-run average total cost is $ per bike. Suppose Ike's Bikes is expecting to produce 300 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). Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.
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 Q = 50 Q = 100 1 220 140 2 310 190 3 400 240 Average Total Cost (Dollars per bike) Q = 150 Q = 200 120 160 120 120 160 120 Q = 250 240 190 140 Q = 300 400 310 220 Suppose Ike's Bikes is currently producing 300 bikes per month in its only factory. Its short-run average total cost is $ per bike. Suppose Ike's Bikes is expecting to produce 300 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). 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: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 Q = 50 Q = 100
220
140
310
190
1
2
3
400
240
Average Total Cost
(Dollars per bike)
Q = 150 Q = 200
120
160
120
120
120
160
Q = 250
240
190
140
Q = 300
400
310
220
Suppose Ike's Bikes is currently producing 300 bikes per month in its only factory. Its short-run average total cost is $
per bike.
Suppose Ike's Bikes is expecting to produce 300 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).
Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.
Transcribed Image Text:AVERAGE TOTAL COST (Dollars per bike)
400
360
320
280
240
200
160
40
0
0
50
100
150
200
QUANTITY (Bikes)
250
Range
Between 150 and 200 bikes per month
More than 200 bikes per month
Fewer than 150 bikes per month
300
350
4
SRATC₁
SRATC₂
-O
SRATC3
o
LRATC
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.
Economies of Scale Constant Returns to Scale Diseconomies of Scale
O
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