1. Business
  2. Economics
  3. 5 costs in the short run versus in the long...

Question: 5 costs in the short run versus in the long...

Question details

5. Costs in the short run versus in the long run Ikes 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 companys short-run average total cost (SRATC) 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.) Average Total Cost (Dollars per bike) Q=300 Number of Factories Q= 100 440 620 800 Q=200 280 380 480 240 240 320 Q=400 320 240 240 Q=500 480 380 280 Q=600 800 620 440 Suppose Ikes Bikes is currently producing 600 bikes per month in its only factory. Its short-run average total cost is S per bike Suppose Ikes Bikes is expecting to produce 600 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 Ikes Bikes from the previous table. Specifically, use the green points (triangle symbol) to plot its SRATC curve if it operates one factory (SRAT℃1); 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 (SRATC1). Finally, plot the long-run average total cost (LRATC) curve for Ikes 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 T SRATC ธี640 a 500 O 480 320 SRATC 240 J 100 LRATC 80 0 100 200 300 40 500 700 QUANTITY OF OUTPUT (Bikes)

Solution by an expert tutor
Blurred Solution
This question has been solved
Subscribe to see this solution