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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.

Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
8th Edition
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter14: Firms In Competitive Markets
Section: Chapter Questions
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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: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.
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
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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