On the following graph, plot the three short-run average total cost curves (SRAT

Question

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 (SRATC_1); use the purple points (diamond symbol) to plot its short-run average total cost if it operates two factories (SRATC_2); and use the orange points (square symbol) to plot its short-run average total cost if it operates three factories (SRATC_3). Finally, plot the long-run average total cost (LRATC) for Ike's Bikes using the blue points (circle symbol). In the long run, over which range of output levels does Ike's Bikes experience constant returns to scale? 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. 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 plot the three short-run average total cost curves (SRATC) for Ike's Bikes from the previous table. Specifically, use the green to plot its short-run average total cost if it operates one factory (SRATC_1); use the purple points (diamond symbol) to plot if it operates two factories (SRATC_2); and use the orange points (square symbol) to plot its short-run average total cost if it operates three factories (SRATC_3). Finally, plot the long-run average total cost (LRATC) for Ike's Bikes using the blue points (circle

Explanation / Answer

It is a problem on short run cost. Firm has three factory. The average cost of each factory are shown in the understated table.

From the above table following questions are solved.

1. If company is currently producing bikes with the help of first factory ad quatity is 100 bikes, then short run average total cost is $440

2. If company maufactures 100 bikes for several years, the first factory will be used, since average total cost of this factory for 100 units is miimum.

Above figures are shown in the diagram below-

The graph shows that the firm will enjoy constant return to scale if it manufactures bikes in the range 300 to 400

ATC of three factories Q ATC1 ATC2 ATC3 100 440 580 720 200 320 400 480 300 240 240 320 400 320 240 240 500 480 400 320 600 720 580 440

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