7. 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 expandingproduction to two or even three factories. The following table shows the company's short-run average total cost each month for various levels ofproduction 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 = 200220160290200240123360Average Total Cost(Dollars per bike)Q = 400160120120Q:= 300120120160Q= 500240200160Q= 600360290220Suppose Ike's Bikes is currently producing 600 bikes per month in its only factory. Its short-run average total cost is $per bike.Suppose Ike's Bikes is expecting to produce 600 bikes per month for several years. In this case, in the long run, it would choose to produce bikesusing one factoryOn the following graph, plot the three short-run average total cost curves (SRATC) for Ike's Bikes from the previous table. Specifically, use thegreen points (triangle symbol) to plot its short-run average total cost if it operates one factory (SRATC₁); use the purple points (diamond symbol) toplot its short-run average total cost if it operates two factories (SRATC2); and use the orange points (square symbol) to plot its short-run averagetotal cost if it operates three factories (SRATC3). Finally, plot the long-run average total cost (LRATC) for Ike's Bikes using the blue points (circlesymbol).Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically. Aplia Homework: Production and Cost in the FirmAVERAGE TOTAL COST (Dollars per bike)400360320280240200160120804000100200300400500QUANTITY OF OUTPUT (Bikes)600More than 400 bikes per monthBetween 300 and 400 bikes per monthFewer than 300 bikes per month700SRATC₁SRATC2SRATC3LRATC?In the long run, over which range of output levels does Ike's Bikes experience diseconomies of scale?

Ike's Bikes is a bicycle manufacturer. Currently it produces bikes using only one factory. But it…

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 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.)

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 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.)

Microeconomics: Principles & Policy

14th Edition

ISBN:9781337794992

Author:William J. Baumol, Alan S. Blinder, John L. Solow

Publisher:William J. Baumol, Alan S. Blinder, John L. Solow

Chapter7: Production, Inputs, And Cost: Building Blocks For Supply Analysis

Section: Chapter Questions

Problem 1DQ

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