Question

The Costs of Production (Mobile-Enabled) Graded Assignment | Read Chapter 13 | Back to Assignment Due Sunday 05.12.19 at 11:00 PM Average: /4 Attempts: . 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: Qequals the total quantity of bikes produced by all factories.) Average Total Cost (Dollars per bike) Q=300 Number of Factories Q=100 440 620 800 Q= 200 280 380 480 Q=400 320 240 240 Q=500 480 380 280 Q=600 800 620 440 240 240 320 2 Suppose Ike's Bikes is currently producing 100 bikes per month in its only factory. Its short-run average total cost is $140 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 one factory On th its S SRAT three factories orange points (square symbol) to plot its SRATC curve if it operates three factories (SRATC3). Finally, plot the long-run avera plot the three SRATC curves for Ike's Bikes from the previous table. Specifically, use the green points (triangle symbol) to plot rates one factory (SRATC1); use the purple points (diamond symbol) to plot its SRATC curve if it operates two factories ( two factories TC) curve for Ike's Bikes using the blue points (circle symbol) 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. 800 SRATC 640 560 SRATC 400 320 SRATC W 240 160 LRATC 100 200 400 300 500 600 700 QUANTITY OF OUTPUT (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 More than 400 bikes per month Fewer than 300 bikes per month Between 300 and 400 bikes per month Economies of Scale Constant Returns to Scale Diseconomies of Scale

Answer 1

a) $ 440 per bike

b) 3 factories

800T 720 SRATC 560 o 480 O 400 320 SRATC SRATC LW 240 LRATC 80T 100 200 300 400500600700 QUANTITY OF OUTPUT (Bikes)

1) More than 400 bikes - Diseconomies of scale

ATC increases as output increases.

2) Less than 300 bikes - Economies of scale

ATC decreases as output increases.

3) Between 300 and 400 bikes - Constant Returns to scale

ATC remains same as output increases.