ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Question
Homework(Ch 13)
AVERAGE TOTALCOST (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.
0
O
SRATC₂
SRATC
O
LRATC
Economies of Scale Constant Returns to Scale
Diseconomies of Scale
O
O
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Transcribed Image Text:Homework(Ch 13) AVERAGE TOTALCOST (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. 0 O SRATC₂ SRATC O LRATC Economies of Scale Constant Returns to Scale Diseconomies of Scale O O
3.cengage.com/static/nb/ui/evo/index.html?deploymentid=5981412232614779684085777463&eISBN=9780357133576&id=1498546365&sna... A
<
CENGAGE MINDTAP
Homework(Ch 13)
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
360
2
540
3
720
Q = 200
200
300
400
.
Average Total Cost
(Dollars per bike)
Q = 300
Q = 400
240
160
160
160
160
240
Q = 500 Q = 600
400
720
300
540
200
360
Suppose Ike's Bikes is currently producing 500 bikes per month in its only factory. Its short-run average total cost is $
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
Q Search this course
Ⓒ
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 (
OLD
O
X
7:59 PM
7/11/2022
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Transcribed Image Text:3.cengage.com/static/nb/ui/evo/index.html?deploymentid=5981412232614779684085777463&eISBN=9780357133576&id=1498546365&sna... A < CENGAGE MINDTAP Homework(Ch 13) 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 1 360 2 540 3 720 Q = 200 200 300 400 . Average Total Cost (Dollars per bike) Q = 300 Q = 400 240 160 160 160 160 240 Q = 500 Q = 600 400 720 300 540 200 360 Suppose Ike's Bikes is currently producing 500 bikes per month in its only factory. Its short-run average total cost is $ 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 Q Search this course Ⓒ 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 ( OLD O X 7:59 PM 7/11/2022
Expert Solution
Check Mark
Introduction:

The average total cost is determined by dividing the total production cost by the total output. In other words, the average cost is the total fixed and variable costs of the firm divided by the total number of units produced. Using the average total cost, production managers determine which level of production can increase profitability. To calculate the total cost of production per unit produced, the average total cost accounts for both fixed and variable costs.

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