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 leve 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 = 75 Q = 150 Q = 225 Q = 300 Q = 375 Q = 450 %3D 1 130 100 80 100 140 200 2 165 120 80 80 120 165 200 140 100 80 100 130 Suppose Ike's Bikes is currently producing 375 bikes per month in its only factory. Its short-run average total cost is s per bike. upnese Tlce's Dilkes is duce 2 75 bilkoS ong run it would co bile
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 leve 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 = 75 Q = 150 Q = 225 Q = 300 Q = 375 Q = 450 %3D 1 130 100 80 100 140 200 2 165 120 80 80 120 165 200 140 100 80 100 130 Suppose Ike's Bikes is currently producing 375 bikes per month in its only factory. Its short-run average total cost is s per bike. upnese Tlce's Dilkes is duce 2 75 bilkoS ong run it would co bile
Chapter22: Supply: The Costs Of Doing Business
Section: Chapter Questions
Problem 14E
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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.)
Average Total Cost
(Dollars per bike)
Number of Factories
Q = 75
Q = 150
Q = 225
Q = 300
Q = 375
Q = 450
130
100
80
100
140
200
165
120
80
80
120
165
3
200
140
100
80
100
130
Suppose Ike's Bikes is currently producing 375 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 375 bikes per month for several years. In this case, in the long run, it would choose to produce bikes
using
Transcribed Image Text: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.
(?
200
180
SRATC,
180
140
SRATC,
120
100
80
SRATC,
60
40
LRATC
20
75
150
225
300
375
450
525
QUANTITY (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.
Range
Economies of Scale
Constant Returns to Scale
Diseconomies of Scale
Fewer than 225 bikes per month
More than 300 bikes per month
Between 225 and 300 bikes per month
AVERAGE TOTAL COST (Dollars per bike)
O o o
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