R 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.) Average Total Cost (Dollars per bike) Number of Factories Q = 25 Q = 50 Q = 75 Q = 125 Q = 150 %3D %3D 130 1. 140 08 001 2. 165 120 120 165 08 08 140 3. 130 007 08 00T Suppose Ike's Bikes is currently producing 25 bikes per month in its only factory. Its short-run average total cost is $ per bike. Suppose Ike's Bikes is expecting to produce 25 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 (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). Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically. MacBook Pro Search or type URL 2. 3. 4. 9. 00 B. +) 3 50 20 AVERAGE TOTAL COST (Dollars per bike) Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically. 180 SRATC, 140 SRATC, 120 SRATC, 09 LRATC 75 00L QUANTITY (Bikes) 25 125 150 175 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. Range Economies of Scale Constant Returns to Scale Diseconomies of Scale Fewer than 75 bikes per month More than 100 bikes per month Between 75 and 100 bikes per month MacBook Pro G Search or type URL 9-

R 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.) Average Total Cost (Dollars per bike) Number of Factories Q = 25 Q = 50 Q = 75 Q = 125 Q = 150 %3D %3D 130 1. 140 08 001 2. 165 120 120 165 08 08 140 3. 130 007 08 00T Suppose Ike's Bikes is currently producing 25 bikes per month in its only factory. Its short-run average total cost is $ per bike. Suppose Ike's Bikes is expecting to produce 25 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 (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). Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically. MacBook Pro Search or type URL 2. 3. 4. 9. 00 B. +) 3 50 20 AVERAGE TOTAL COST (Dollars per bike) Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically. 180 SRATC, 140 SRATC, 120 SRATC, 09 LRATC 75 00L QUANTITY (Bikes) 25 125 150 175 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. Range Economies of Scale Constant Returns to Scale Diseconomies of Scale Fewer than 75 bikes per month More than 100 bikes per month Between 75 and 100 bikes per month MacBook Pro G Search or type URL 9-

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter11: Price And Output Determination: Monopoly And Dominant Firms

Section: Chapter Questions

Problem 6E

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