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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 (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 AVERAGE TOTAL COST (Dollars per bike) 400 360 320 280 240 200 160 Suppose Ike's Bikes is currently producing 50 bikes per month in its only factory. Its short-run average total cost is $ 120 80 Suppose Ike's Bikes is expecting to produce 50 bikes per month for several years. In this case, in the long run, it would choose to produce bikes using 40 Q = 50 180 270 360 On the following graph, plot the three SRATC curves for Ike's Bikes from the previous table. Specifically, use the green points (triangle symbol) to plot its SRATC curve if it operates one factory (SRATC₁); use the purple points (diamond symbol) to plot its SRATC curve if it operates two factories (SRATC₂); and use the orange points (square symbol) to plot its SRATC curve if it operates three factories (SRATCs). Finally, plot the long-run average total cost (LRATC) curve 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. 0 50 Q = 100 100 150 200 100 Average Total Cost (Dollars per bike) Q=200 120 80 80 150 200 QUANTITY (Bikes) Q 150 200 bis manti = 150 80 250 80 120 Q=250 200 300 350 SRATC SRATC₂ 150 --0- 100 SRATC Q=300 360 LRATC 270 180 per bike. In the following table, indicate whether the long-run average cost curve exhibits economies of scale, constant returns to scale, or diseconomies of scale for each range of bike production. Range Economies of Scale Constant Returns to Scale Diseconomies of Scale

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 AVERAGE TOTAL COST (Dollars per bike) 400 360 320 280 240 200 160 Suppose Ike's Bikes is currently producing 50 bikes per month in its only factory. Its short-run average total cost is $ 120 80 Suppose Ike's Bikes is expecting to produce 50 bikes per month for several years. In this case, in the long run, it would choose to produce bikes using 40 Q = 50 180 270 360 On the following graph, plot the three SRATC curves for Ike's Bikes from the previous table. Specifically, use the green points (triangle symbol) to plot its SRATC curve if it operates one factory (SRATC₁); use the purple points (diamond symbol) to plot its SRATC curve if it operates two factories (SRATC₂); and use the orange points (square symbol) to plot its SRATC curve if it operates three factories (SRATCs). Finally, plot the long-run average total cost (LRATC) curve 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. 0 50 Q = 100 100 150 200 100 Average Total Cost (Dollars per bike) Q=200 120 80 80 150 200 QUANTITY (Bikes) Q 150 200 bis manti = 150 80 250 80 120 Q=250 200 300 350 SRATC SRATC₂ 150 --0- 100 SRATC Q=300 360 LRATC 270 180 per bike. In the following table, indicate whether the long-run average cost curve exhibits economies of scale, constant returns to scale, or diseconomies of scale for each range of bike production. Range Economies of Scale Constant Returns to Scale Diseconomies of Scale

Principles of Microeconomics
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter13: The Cost Of Production
Section: Chapter Questions
Problem 6PA
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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: Qequals the total quantity of bikes produced by all factories.) Number of Factories Q = 50 1 180 2 270 3 360 AVERAGE TOTAL COST (Dollars per bike) 400 360 320 280 240 Suppose Ike's Bikes is currently producing 50 bikes per month in its only factory. Its short-run average total cost is 200 per bike. Suppose Ike's Bikes is expecting to produce 50 bikes per month for several years. In this case, in the long run, it would choose to produce bikes using 160 On the following graph, plot the three SRATC curves for Ike's Bikes from the previous table. Specifically, use the green points (triangle symbol) to plot its SRATC curve if it operates one factory (SRATC₁); use the purple points (diamond symbol) to plot its SRATC curve if it operates two factories (SRATC₂); and use the orange points (square symbol) to plot its SRATC curve if it operates three factories (SRATC3). Finally, plot the long-run average total cost (LRATC) curve 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. 120 80 40 50 100 Q=100 100 150 200 150 200 QUANTITY (Bikes) Range Between 150 and 200 bikes per month More than 200 bikes per month Average Total Cost (Dollars per bike) Q = 150 80 80 120 Fewer than 150 bikes per month 250 Q200 120 80 300 80 350 Q = 250 200 150 4 SRATC 100 SRATC₂ -0- Q = 300 360 270 180 SRATC LRATC In the following table, indicate whether the long-run average cost curve exhibits economies of scale, constant returns to scale, or diseconomies of scale for each range of bike production. Economies of Scale Constant Returns to Scale Diseconomies of Scale
Transcribed Image Text: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: Qequals the total quantity of bikes produced by all factories.) Number of Factories Q = 50 1 180 2 270 3 360 AVERAGE TOTAL COST (Dollars per bike) 400 360 320 280 240 Suppose Ike's Bikes is currently producing 50 bikes per month in its only factory. Its short-run average total cost is 200 per bike. Suppose Ike's Bikes is expecting to produce 50 bikes per month for several years. In this case, in the long run, it would choose to produce bikes using 160 On the following graph, plot the three SRATC curves for Ike's Bikes from the previous table. Specifically, use the green points (triangle symbol) to plot its SRATC curve if it operates one factory (SRATC₁); use the purple points (diamond symbol) to plot its SRATC curve if it operates two factories (SRATC₂); and use the orange points (square symbol) to plot its SRATC curve if it operates three factories (SRATC3). Finally, plot the long-run average total cost (LRATC) curve 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. 120 80 40 50 100 Q=100 100 150 200 150 200 QUANTITY (Bikes) Range Between 150 and 200 bikes per month More than 200 bikes per month Average Total Cost (Dollars per bike) Q = 150 80 80 120 Fewer than 150 bikes per month 250 Q200 120 80 300 80 350 Q = 250 200 150 4 SRATC 100 SRATC₂ -0- Q = 300 360 270 180 SRATC LRATC In the following table, indicate whether the long-run average cost curve exhibits economies of scale, constant returns to scale, or diseconomies of scale for each range of bike production. Economies of Scale Constant Returns to Scale Diseconomies of Scale
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