Econ Micro (book Only)
6th Edition
ISBN: 9781337408066
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 7, Problem 11P
To determine
Sources of economies of scale and diseconomies of scale.
Concept Introduction:
A competitive advantage that large entities have over smaller entities is called economies of scale. On the other hand the cost disadvantages that firms and government accrued due to increase in output and size hence increasing the unit cost per unit is called as diseconomies of scale.
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5. 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 (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
1
2
3
Q = 100 Q 200
440
280
380
480
620
800
Average Total Cost
(Dollars per bike)
Q = 300
Q = 400
240
320
240
240
320
240
Q = 500
480
380
280
Q = 600
800
620
440
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 SRATC curves for…
7. Define Economies of Scale, Diseconomies of Scale, Constant returns to scale.
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