ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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4. Costs in the short run versus 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 cost 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
440
580
720
Q = 200
320
400
480
Average Cost
(Dollars per bike)
Q = 300
Q = 400
240
320
240
240
320
240
Q = 500
480
400
320
Q = 600
720
580
440
Suppose Ike's Bikes is currently producing 600 bikes per month in its only factory. Its short-run average 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
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Transcribed Image Text:4. Costs in the short run versus 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 cost 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 = 100 440 580 720 Q = 200 320 400 480 Average Cost (Dollars per bike) Q = 300 Q = 400 240 320 240 240 320 240 Q = 500 480 400 320 Q = 600 720 580 440 Suppose Ike's Bikes is currently producing 600 bikes per month in its only factory. Its short-run average 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
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