Question

11. 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 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 Average Total Cost (Dollars per bike) = 100 Q = 200 = 300 = 400 260 200 160 200 330240160 160 400 280 2 00 160 = 500 l = 600 280 400 240330 200 260 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 short-run average total cost curves (SRATC) for Ike's Bikes from the previous table. Specifically, use the green points (triangle symbol) to plot its short-run average total cost if it operates one factory (SRATC)); use the purple points (diamond symbol) to plot its short-run average total cost if it operates two factories (SRATC2); and use the orange points (square symbol) to plot its short-run average total cost if it operates three factories (SRATC3 ). Finally, plot the long-run average total cost (LRATC) for Ike's Bikes using the blue points (circle symbol

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 each month for various levels of production if it uses one, two, or three factories. (Note: QQ equals the total quantity of bikes produced by all factories.

Answer 1

Answer:

Q	SRATC1	SRATC2	SRATC3	LRATC
100	260	330	400	260
200	200	240	280	200
300	160	160	200	160
400	200	160	160	160
500	280	240	200	200
600	400	330	260	260

Suppose Ike's Bikes is currently producing 100 bikes per month in its only factory. Its short-run average total cost is $260 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

SRATC SRATC AVERAGE TOTAL COST (Dollars per bike) SRATC O LRATC 0 100 600 700 200 300 400 500 QUANTITY OF OUTPUT (Bikes)

In long run Between 300 and 400 bikes per month it experience constant value returns of scale