01 May Question: Attempts: Average: /4 5. Costs in the short run versus in the long run Ike’s Bikes is a major man…
Attempts: Average: /4 5. Costs in the short run versus in the long run Ike’s Bikes is a major manufacturer of blcycles. 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 100 Q 20o Q 300 Q 400 Q 500 Q600 440 620 800 280 380 480 240 240 320 320 240 240 480 380 280 800 620 440 $280 per bike. Suppose Ike’s Bikes is currently producing 100 bikes per month in its only factory. Its short-run average total cost is Suppose Ike’s Bikes is expecting to produce 100 bikes per month for several years. In this case, in the long run, it would choose to produce bikes using one factoryY 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 (SRATCI); 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
Note: Plot your points in the order in which you would like them connected. LIne segments will connect the points automatically 800 T 720 SRATC 640 SRATC2 400 SRATC, 240 t LRATC 100200 300 400 500 700 QUANTITY OF OUTPUT (Bikes) 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 Range Fewer than 300 bikes per month Between 300 and 400 bikes per month More than 400 bikes per month Diseconomies of Scale
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