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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.) Number of Factories Q = 100 440 580 720 1 2 3 Q = 200 320 400 480 Average Total Cost (Dollars per bike) Q = 300 Q = 400 240 320 240 240 320 240 Q = 500 480 400 320 Q = 600 720 580 440 Suppose Ike's Bikes is currently producing 600 bikes per month in its only factory. Its short-run average total cost is S 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 bikes using On the following graph, plot the three short-run average total cost (SRATC) curves for Ike's Bikes from the previous table. Specifically, use the green points (triangle symbol) to plot its short-run average total cost if it operates one factory (SRATC₁); use the purple points (diamond symbol) to plot its short-run average total cost if it operates two factories (SRATC₂); and use the orange points (square symbol) to plot its short-run average total cost if it operates three factories (SRATC3). Finally, plot the long-run average total cost (LRATC) 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. 2

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.) Number of Factories Q = 100 440 580 720 1 2 3 Q = 200 320 400 480 Average Total Cost (Dollars per bike) Q = 300 Q = 400 240 320 240 240 320 240 Q = 500 480 400 320 Q = 600 720 580 440 Suppose Ike's Bikes is currently producing 600 bikes per month in its only factory. Its short-run average total cost is S 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 bikes using On the following graph, plot the three short-run average total cost (SRATC) curves for Ike's Bikes from the previous table. Specifically, use the green points (triangle symbol) to plot its short-run average total cost if it operates one factory (SRATC₁); use the purple points (diamond symbol) to plot its short-run average total cost if it operates two factories (SRATC₂); and use the orange points (square symbol) to plot its short-run average total cost if it operates three factories (SRATC3). Finally, plot the long-run average total cost (LRATC) 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. 2

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
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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 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.) Number of Factories Q = 100 440 580 720 1 2 3 Q = 200 320 400 480 Average Total Cost (Dollars per bike) Q = 300 Q = 400 240 320 240 240 320 240 Q = 500 480 400 320 Q = 600 720 580 440 Suppose 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 bikes using On the following graph, plot the three short-run average total cost (SRATC) curves for Ike's Bikes from the previous table. Specifically, use the green points (triangle symbol) to plot its short-run average total cost if it operates one factory (SRATC₁); use the purple points (diamond symbol) to plot its short-run average total cost if it operates two factories (SRATC₂); and use the orange points (square symbol) to plot its short-run average total cost if it operates three factories (SRATC3). Finally, plot the long-run average total cost (LRATC) 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: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 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.) Number of Factories Q = 100 440 580 720 1 2 3 Q = 200 320 400 480 Average Total Cost (Dollars per bike) Q = 300 Q = 400 240 320 240 240 320 240 Q = 500 480 400 320 Q = 600 720 580 440 Suppose 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 bikes using On the following graph, plot the three short-run average total cost (SRATC) curves for Ike's Bikes from the previous table. Specifically, use the green points (triangle symbol) to plot its short-run average total cost if it operates one factory (SRATC₁); use the purple points (diamond symbol) to plot its short-run average total cost if it operates two factories (SRATC₂); and use the orange points (square symbol) to plot its short-run average total cost if it operates three factories (SRATC3). Finally, plot the long-run average total cost (LRATC) 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.
total cost if it operates three factories (SRATC3). Finally, plot the long-run average total cost (LRATC) 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. AVERAGE TOTAL COST (Dollars per bike) 800 720 640 560 480 400 320 240 160 80 0 0 100 200 300 400 500 QUANTITY OF OUTPUT (Bikes) 600 O More than 400 bikes per month O Between 300 and 400 bikes per month O Fewer than 300 bikes per month 700 A SRATC₁ SRATC₂ -0- SRATC LRATC (?) In the long run, over which range of output levels does Ike's Bikes experience constant returns to scale?
Transcribed Image Text:total cost if it operates three factories (SRATC3). Finally, plot the long-run average total cost (LRATC) 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. AVERAGE TOTAL COST (Dollars per bike) 800 720 640 560 480 400 320 240 160 80 0 0 100 200 300 400 500 QUANTITY OF OUTPUT (Bikes) 600 O More than 400 bikes per month O Between 300 and 400 bikes per month O Fewer than 300 bikes per month 700 A SRATC₁ SRATC₂ -0- SRATC LRATC (?) In the long run, over which range of output levels does Ike's Bikes experience constant returns to scale?
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