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Number of Factories 1 2 3 Q = 100 Q = 200 440 620 800 280 380 480 (Dollars per bike) Q = 300 240 240 320 Q = 400 Q = 500 320 240 240 480 380 280 Q = 600 800 620 440 Suppose Ike's Bikes is currently producing 600 bikes per month in its only factory. Its short-run average total cost is $ per bike. Suppose Ike's Bikes is expecting to produce 600 bikes per month for several years. In this case, in the long run, it would choose to produce bikes using

Number of Factories 1 2 3 Q = 100 Q = 200 440 620 800 280 380 480 (Dollars per bike) Q = 300 240 240 320 Q = 400 Q = 500 320 240 240 480 380 280 Q = 600 800 620 440 Suppose Ike's Bikes is currently producing 600 bikes per month in its only factory. Its short-run average total cost is $ per bike. Suppose Ike's Bikes is expecting to produce 600 bikes per month for several years. In this case, in the long run, it would choose to produce bikes using

Essentials of Economics (MindTap Course List)
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter12: The Cost Of Production
Section: Chapter Questions
Problem 3CQQ
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3. 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 = 100 440 620 1 2 3 800 Q = 200 280 380 480 Average Total Cost (Dollars per bike) Q = 300 Q = 400 240 240 320 320 240 240 Q = 500 Q = 600 480 380 280 800 620 440 Suppose Ike's Bikes is currently producing 600 bikes per month in its only factory. Its short-run average total cost is $ per bike. Suppose Ike's Bikes is expecting to produce 600 bikes per month for several years. In this case, in the long run, it would choose to produce bikes using
Transcribed Image Text:3. 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 = 100 440 620 1 2 3 800 Q = 200 280 380 480 Average Total Cost (Dollars per bike) Q = 300 Q = 400 240 240 320 320 240 240 Q = 500 Q = 600 480 380 280 800 620 440 Suppose Ike's Bikes is currently producing 600 bikes per month in its only factory. Its short-run average total cost is $ per bike. Suppose Ike's Bikes is expecting to produce 600 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. 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 Between 300 and 400 bikes per month 500 Fewer than 300 bikes per month More than 400 bikes per month. 600 700 SRATC₁ O O SRATC₂ 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. LRATC (?) Economies of Scale Constant Returns to Scale Diseconomies of Scale O
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. 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 Between 300 and 400 bikes per month 500 Fewer than 300 bikes per month More than 400 bikes per month. 600 700 SRATC₁ O O SRATC₂ 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. LRATC (?) Economies of Scale Constant Returns to Scale Diseconomies of Scale O
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