6. Costs in the short run versus in the long run Ike's Bikes is a major...
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6. 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 = 100 260 330 400 1 2 3 Q=200 200 240 280 Average Total Cost (Dollars per bike) Q = 300 Q = 400 160 200 160 160 200 160 Q = 500 280 240 200 Q = 600 400 330 260 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 (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 cost curve (LRAC) 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. COST PER BIKE (Dollars) 400 360 320 280 240 200 160 120 80 40 0 0 100 200 300 400 500 QUANTITY OF OUTPUT (Bikes) 600 700 SRATC₁ SRATC₂ SRATC3 LRAC (?) In the long run, over which range of output levels does Ike's Bikes experience constant returns to scale? Fewer than 300 bikes per month More than 400 bikes per month Between 300 and 400 bikes per month 6. 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 = 100 260 330 400 1 2 3 Q=200 200 240 280 Average Total Cost (Dollars per bike) Q = 300 Q = 400 160 200 160 160 200 160 Q = 500 280 240 200 Q = 600 400 330 260 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 (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 cost curve (LRAC) 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. COST PER BIKE (Dollars) 400 360 320 280 240 200 160 120 80 40 0 0 100 200 300 400 500 QUANTITY OF OUTPUT (Bikes) 600 700 SRATC₁ SRATC₂ SRATC3 LRAC (?) In the long run, over which range of output levels does Ike's Bikes experience constant returns to scale? Fewer than 300 bikes per month More than 400 bikes per month Between 300 and 400 bikes per month
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Related Book For
International Economics
ISBN: 978-1429278447
3rd edition
Authors: Robert C. Feenstra, Alan M. Taylor
Posted Date:
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