Answer Happy

5. 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.) Number of Factories Q100 360 Q = 600 Average Total Cost (Dollars per bike) Q = 300 Q - 400 160 240 160 160 Q = 200 200 Q = 500 400 1 720 2 540 300 300 540 3 720 400+ 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 5 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 I SRATC curve if it operates one factory (SRATC1); use the purple points (davrond symbol) to plotits SRATC curve if it operates two factories SRATC) and use the orange points (square symbol) to plotits SRATC curve in it operates three factories (SRATC). Finally, plot the long run average total cost (LRATC) curve for Ike's Bikes using the blue points (circle symbol).

100 720 540 SRATC 500 16 SRATC AVERAGE TOTAL COST (Dollars per bike) 400 320 SRATC 240 100 LRATC no 100 200 500 100 TOD 300 400 QUANTITY (Bikes) In the following table, indicate whether the long run average cost curve exhibits econorwes of scale, constant returns to scale, or diseconomes or scale for each range of bike production Economies of Scale Range Fewer than 100 bikes per month Constant Returns to Scale Diseconomies of Scale More than 400 bikes per month Between 300 and 400 bikes per month