5. Costs in the short run versus in the long run Blue Arrow drop down menu is fo

Question

5. Costs in the short run versus in the long run

Blue Arrow drop down menu is for either 1 factory, 2 factories or 3 factories.

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: Q equals the total quantity of bikes produced by all factories.) Average Total Cost (Dollars per bike) Q=300 Number of Factories Q=100 440 580 720 Q=200 320 400 480 240 240 320 Q=400 320 240 240 Q=500 480 400 320 Q=600 720 580 440 Suppose Ike's Bikes is currently producing 600 bikes per month in its only factory. Its short-run average total cost is $ per bike Suppose Ike's 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

Explanation / Answer

Ans to blank 1: $720

Ans to blank 2: 2 factories (ATC will be $240)

3. Between 300 and 400 bikes per month

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