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.) Average Total Cost (Dollars per bike) Number of Factories O = 100 O = 200 Q = 300 Q = 400 O = 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 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 On the following graph, plot the three short-run average total cost curves (SRATC) 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.
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.) Average Total Cost (Dollars per bike) Number of Factories O = 100 O = 200 Q = 300 Q = 400 O = 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 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 On the following graph, plot the three short-run average total cost curves (SRATC) 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.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
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 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 = 100
O = 200
O = 300
Q = 400
O = 500
O = 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 total cost is $
per bike.
kes
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
using
On the following graph, plot the three short-run average total cost curves (SRATC) 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 (SRATC\); 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:Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.
400
360
SRATC,
320
280
240
SRATC,
160
SRATC,
120
-O
80
LRATC
40
100
200
300
400
500
600
700
QUANTITY OF OUTPUT (Bikes)
In the long run, over which range of output levels does Ike's Bikes experience constant average cost?
O Fewer than 300 bikes per month
O Between 300 and 400 bikes per month
O More than 400 bikes per month
AVERAGE TOTAL COST (Dollars per bike)
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