Question

6. Long-run production costs Aa Aa Ike's Bikes is a major manufacturer of bicycles. Currently, the company produces bikes in 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: Qequals the total quantity of bikes produced by all factories.) Average Total Cost (ATC) 300 240 240 240 Q400 360 320 240 Q500 560 480 320 Number of Factories Q100 320 480 560 Q 200 240 320 360 Imagine Ike's Bikes is currently producing 500 bikes per month in its (only) factory. Its short-run average total cost is per bike. Imagine Ike's Bikes is expecting to produce 500 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 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 (SRATC1); 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). Line segments will automatically connect the points. Be sure to plot from left to right. Finally, plot the long-run average total cost (LRAC) for Ike's Bikes using the red points (cross symbol) Tool tip: Mouse over your points on the graph to see their coordinates to ensure that you've plotted them accurately COST PER UNIT |Dollars per bike 800 SRATC1 700 600 SRATC2 500 SRATC3 400 300 LRAC 200 100 100 200 300 400 500 600 OUTPUT I Bikes per monthl Hele GlearAL In the long run, throughout which range of output levels does Ike's experience diseconomies of scale? O Between 200 and 400 bikes per month O More than 400 bikes per month Fewer than 200 bikes per month

Answer 1

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