Question

All one question:
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 = 100 360 540 720 Q = 200 200 300 400 Average Total Cost (Dollars per bike) Q = 300 Q = 400 Q = 500 Q = 600 160 240 400 720 160 160 300 540 240 160 200 360 Suppose Ike's Bikes is currently producing 100 bikes per month in its only factory. Its short-run average total cost is $ 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. 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 (SRATC); 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. SRATC1 SRATC 2 AVERAGE TOTAL COST (Dollars per bike) HHHHHHHHH SRATC 3 LRATC + 0 + 100 500 600 700 200 300 400 QUANTITY (Bikes)

Answer 1

Quantity	SRATC1	SRATC2	SRATC3	LRATC
100	360	540	720	360
200	200	300	400	200
300	160	160	240	160
400	240	160	160	160
500	400	300	200	200
600	720	540	360	360

Note: LRATC is the minimum SRATC among the available factories corresponding to each level of output

AVERAGE TOTAL COST 0 100 200 500 600 700 300 400 QUANTITY SRATCI SRATC2- SRATC3 - LRATC

Suppose Ike's Bikes is currently producing 100 bikes per month in its only factory. Its short run average total cost is $360 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.

More than 400 bikes per month (Diseconomies of scale)

Between 300 and 400 bikes per month. (Constant return to scale)

Fewer than 300 bikes per month (Economies of scale)

Note: If LRATC decreases as the quantity increases -------> Economies of scale.

If LRATC increases as the quantity increases ------------------>Diseconomies of scale.

If LRATC remains constant as the quantity increases ---------> constant returns to scale.