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AVERAGE TOTAL COST (Dollars per bike) 640 560 480 400 320 240 160 80 0 0 100 200 300 400 QUANTITY (Bikes) 500 Range Fewer than 300 bikes per month Between 300 and 400 bikes per month More than 400 bikes per month 600 700 SRATC₁ O O SRATC₂ SRATC3 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. LRATC Economies of Scale Constant Returns to Scale Diseconomies of Scale ο ο ο

AVERAGE TOTAL COST (Dollars per bike) 640 560 480 400 320 240 160 80 0 0 100 200 300 400 QUANTITY (Bikes) 500 Range Fewer than 300 bikes per month Between 300 and 400 bikes per month More than 400 bikes per month 600 700 SRATC₁ O O SRATC₂ SRATC3 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. LRATC Economies of Scale Constant Returns to Scale Diseconomies of Scale ο ο ο

Economics:
Economics:
10th Edition
ISBN:9781285859460
Author:BOYES, William
Publisher:BOYES, William
Chapter22: Supply: The Costs Of Doing Business
Section: Chapter Questions
Problem 14E
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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 74°F Clear 2 3 440 620 800 Q = 200 280 380 480 Average Total Cost (Dollars per bike) Q = 300 Q = 400 240 320 240 320 240 240 Q = 500 480 380 280 Q = 600 800 620 440 Suppose Ike's Bikes is currently producing 100 bikes per month in its only factory. Its short-run average total cost is $440 per bike. 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 factory 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 ( SRATC₂); and use the orange points (square symbol) to plot its SRATC curve if it operates three factories (SRATC3). Finally, plot the long-run average total cost (LRATC) curve for Ike's Bikes using the blue points (circle symbol). OL
Transcribed Image Text: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 74°F Clear 2 3 440 620 800 Q = 200 280 380 480 Average Total Cost (Dollars per bike) Q = 300 Q = 400 240 320 240 320 240 240 Q = 500 480 380 280 Q = 600 800 620 440 Suppose Ike's Bikes is currently producing 100 bikes per month in its only factory. Its short-run average total cost is $440 per bike. 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 factory 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 ( SRATC₂); and use the orange points (square symbol) to plot its SRATC curve if it operates three factories (SRATC3). Finally, plot the long-run average total cost (LRATC) curve for Ike's Bikes using the blue points (circle symbol). OL
Homework (Ch 13) 74°F Clear AVERAGE TOTAL COST (Dollars per bike) 640 560 480 400 320 240 160 80 0 0 100 200 300 400 QUANTITY (Bikes) Range Fewer than 300 bikes per month Between 300 and 400 bikes per month 500 More than 400 bikes per month 600 700 SRATC₁ 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 SRATC SRATC3 LRATC Economies of Scale Constant Returns to Scale Diseconomies of Scale a O
Transcribed Image Text:Homework (Ch 13) 74°F Clear AVERAGE TOTAL COST (Dollars per bike) 640 560 480 400 320 240 160 80 0 0 100 200 300 400 QUANTITY (Bikes) Range Fewer than 300 bikes per month Between 300 and 400 bikes per month 500 More than 400 bikes per month 600 700 SRATC₁ 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 SRATC SRATC3 LRATC Economies of Scale Constant Returns to Scale Diseconomies of Scale a O
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