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 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.) Average Cost (Dollars per bike) Number of Factories Q = 100 Q = 200 Q = 300 400 Q = 500 Q = 600 1 260 200 160 200 280 400 2 330 240 160 160 240 330 400 280 200 160 200 260 Suppose Ike's Bikes is currently producing 100 bikes per month in its only factory. Its short-run average 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 On the plot the three short-run average cost (SRAC) curves for Ike's Bikes from the previous table. Specifically, use the green points two factories (trian t its short-run average cost if it operates one factory (SRAC1); use the purple points (diamond symbol) to plot its short-run avera three factories tes two factories (SRAC2); and use the orange points (square symbol) to plot its short-run average cost if it operates three factories (SnAC3). 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.
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 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.) Average Cost (Dollars per bike) Number of Factories Q = 100 Q = 200 Q = 300 400 Q = 500 Q = 600 1 260 200 160 200 280 400 2 330 240 160 160 240 330 400 280 200 160 200 260 Suppose Ike's Bikes is currently producing 100 bikes per month in its only factory. Its short-run average 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 On the plot the three short-run average cost (SRAC) curves for Ike's Bikes from the previous table. Specifically, use the green points two factories (trian t its short-run average cost if it operates one factory (SRAC1); use the purple points (diamond symbol) to plot its short-run avera three factories tes two factories (SRAC2); and use the orange points (square symbol) to plot its short-run average cost if it operates three factories (SnAC3). 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.
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 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.)
Average Cost
(Dollars per bike)
Number of Factories
Q = 100
Q = 200
Q = 300
Q = 400
Q = 500
Q = 600
%3D
1
260
200
160
200
280
400
2
330
240
160
160
240
330
400
280
200
160
200
260
Suppose Ike's Bikes is currently producing 100 bikes per month in its only factory. Its short-run average 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
On the
plot the three short-run average cost (SRAC) curves for Ike's Bikes from the previous table. Specifically, use the green points
two factories
(trian
t its short-run average cost if it operates one factory (SRAC1); use the purple points (diamond symbol) to plot its short-run
avera three factories tes two factories (SRAC2); and use the orange points (square symbol) to plot its short-run average cost if it operates three
factories (onAU3). 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.
Transcribed Image Text:ne
Homework: Production, Inputs, and Cost: Building Blocks for Supply Analysis
320
SRAC,
280
and Study Tools
240
SRAC,
ptions
200
Cuccess Tips
160
SRAC,
uccess Tips
120
80
LRAC
40
Iback
100
200
300
400
500
600
700
QUANTITY OF OUTPUT (Bikes)
the long run, over which range of output levels does Ike's Bikes experience constant returns to scale?
O Fewer than 300 bikes per month
O Between 300 and 400 bikes per month
O More than 400 bikes per month
AVERAGE COST (Dollars per bike)
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