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 = 100 360 540 720 Q=200 200 300 400 Average Total Cost (Dollars per bike) Q=300 Q = 400 160 240 160 240 160 160 Q = 500 400 300 200 Q = 600 720 540 360 Suppose Ike's Bikes is currently producing 500 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 500 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 Ike's Bikes from the previous table. Specifically, use the green points (triangle symbol) to plot its SRATC curve if it operates one factory (SRATCL) 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 (SRATC). Finally, plot the long-run average total cost (LRATC) curve for Ike's Bikes using the blue points (arcle symboll. Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.
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 = 100 360 540 720 Q=200 200 300 400 Average Total Cost (Dollars per bike) Q=300 Q = 400 160 240 160 240 160 160 Q = 500 400 300 200 Q = 600 720 540 360 Suppose Ike's Bikes is currently producing 500 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 500 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 Ike's Bikes from the previous table. Specifically, use the green points (triangle symbol) to plot its SRATC curve if it operates one factory (SRATCL) 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 (SRATC). Finally, plot the long-run average total cost (LRATC) curve for Ike's Bikes using the blue points (arcle symboll. 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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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.)
Number of Factories Q = 100
1
2
3
360
540
720
Q=200
200
300
400
Average Total Cost
(Dollars per bike)
Q = 300
Q = 400
160
240
160
240
160
160
Q = 500
400
300
200
Q = 600
720
540
360
Suppose Ike's Bikes is currently producing 500 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 500 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 Ike's Bikes from the previous table. Specifically, use the green points (triangle symbol) to plot
its SRATC curve if it operates one factory (SRATC): 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 (SRATC). 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.
Transcribed Image Text:AVERAGE TOTAL COST (Dollars per bike)
800
720
640
560
480
400
320
240
160
80
0
0
100
200
300
400
QUANTITY (Bikes)
Range
Fewer than 300 bikes per month
More than 400 bikes per month
500
Between 300 and 400 bikes per month
600
700
SRATC
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.
O
SRATC₂
--
SRATC
O
LRATO
Economies of Scale Constant Returns to Scale Diseconomies of Scale
0
O
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