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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.)

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.)

Economics:
Economics:
10th Edition
ISBN:9781285859460
Author:BOYES, William
Publisher:BOYES, William
Chapter22: Supply: The Costs Of Doing Business
Section: Chapter Questions
Problem 14E
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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 = 200 520 400 660 480 800 560 1 2 3 Average Total Cost (Dollars per bike) Q = 300 Q = 400 320 400 320 320 400 320 Q = 500 560 480 400 Q = 600 800 660 520 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 total cost (LRATC) for Ike's Bikes using the blue points (circle symbol).
Transcribed Image Text: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 = 200 520 400 660 480 800 560 1 2 3 Average Total Cost (Dollars per bike) Q = 300 Q = 400 320 400 320 320 400 320 Q = 500 560 480 400 Q = 600 800 660 520 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 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) 800 720 640 560 480 400 320 240 160 80 0 0 100 200 300 400 500 QUANTITY OF OUTPUT (Bikes) 600 More than 400 bikes per month Fewer than 300 bikes per month Between 300 and 400 bikes per month 700 SRATC, SRATC₂ SRATC3 LRATC In the long run, over which range of output levels does Ike's Bikes experience diseconomies of scale?
Transcribed Image Text: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) 800 720 640 560 480 400 320 240 160 80 0 0 100 200 300 400 500 QUANTITY OF OUTPUT (Bikes) 600 More than 400 bikes per month Fewer than 300 bikes per month Between 300 and 400 bikes per month 700 SRATC, SRATC₂ SRATC3 LRATC In the long run, over which range of output levels does Ike's Bikes experience diseconomies of scale?
Expert Solution
Step 1

Ike's bikes is a bicycle manufacturer. 

Currently, it produces all of its bicycles in one factory only. 

It can increase its number of factories to three in long run.

 

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