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.) Average Total Cost (Dollars per bike) Number of Factories Q = 100 Q = = 200 Q = 300 = 400 Q = 500 Q = 600 1 360 200 160 240 400 720 2 540 300 160 160 300 540 3 720 400 240 160 200 360 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 one factory On the plot the three SRATC curves for Ike's Bikes from the previous table. Specifically, use the green points (triangle symbol) to plot two factories its SR erates one factory (SRATC1); use the purple points (diamond symbol) to plot its SRATC curve if it operates two factories ( SRAT three factories orange points (square symbol) to plot its SRATC curve if it operates three factories (SRATC3). Finally, plot the long-run average colai COst (ERATC) curve for Ike's Bikes using the blue points (circle symbol).
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.) Average Total Cost (Dollars per bike) Number of Factories Q = 100 Q = = 200 Q = 300 = 400 Q = 500 Q = 600 1 360 200 160 240 400 720 2 540 300 160 160 300 540 3 720 400 240 160 200 360 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 one factory On the plot the three SRATC curves for Ike's Bikes from the previous table. Specifically, use the green points (triangle symbol) to plot two factories its SR erates one factory (SRATC1); use the purple points (diamond symbol) to plot its SRATC curve if it operates two factories ( SRAT three factories orange points (square symbol) to plot its SRATC curve if it operates three factories (SRATC3). Finally, plot the long-run average colai COst (ERATC) curve for Ike's Bikes using the blue points (circle symbol).
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter12: The Cost Of Production
Section: Chapter Questions
Problem 3CQQ
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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: Q equals the total quantity of bikes produced by all factories.)
Average Total Cost
(Dollars per bike)
Number of Factories
Q = 100
Q =
= 200
Q = 300
= 400
Q = 500
Q = 600
1
360
200
160
240
400
720
2
540
300
160
160
300
540
3
720
400
240
160
200
360
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
one factory
On the
plot the three SRATC curves for Ike's Bikes from the previous table. Specifically, use the green points (triangle symbol) to plot
two factories
its SR
erates one factory (SRATC1); use the purple points (diamond symbol) to plot its SRATC curve if it operates two factories (
SRAT three factories orange points (square symbol) to plot its SRATC curve if it operates three factories (SRATC3). Finally, plot the long-run
average colai COst (ERATC) curve for Ike's Bikes using the blue points (circle symbol).
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