Answer Happy

7. 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 Q=100 Q = 200 60 1 2 3 400 140 360 230 320 320 110 160 Average Total Cost (Dollars per bike) Q=300 Q = 400 40 80 40 40 40 80 Suppose Ike's Bikes is currently producing 500 bikes per month in its only factory. Its short-run average total cost is s Suppose 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 Q = 500 160 110 60 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 (SRATC1); use the purple points (diamond symbol) to plot its short-run average total cost if it operates two factories (SRATC1); and use the orange points (square symbol) to plot its short-run average total cost if it operates three factories (SRATC). Finally, plot the long-run average total cost (LRATC) 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. Q = 600 320 230 140 SRATC, per bike.

Aplia Homework: Production and Cost in the Firm. 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). Finally, plot the long-run average total cost (LRATC) 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) 400 360 320 280 240 200 160 120 80 40 0 0 100 200 300 400 QUANTITY OF OUTPUT (Bikes) 500 600 700 A SRATC, SRATC₂ -0- SRATC LRATC In the long run, over which range of output levels does Ike's Bikes experience economies of scale? Between 300 and 400 bikes per month More than 400 bikes per month Fewer than 300 bikes per month