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

Scooter's Scooters is a large American manufacturer of electric scooters operating out of Spokane. Currently, the company produces all of its scooters using a single manufacturing facility, its factory in town. Recently, management has been considering expanding operations to one or two additional factories. The following table presents the manufacturer's monthly short-run average total cost (SRATC) for various levels of production if it operates out of one, two, or three factories. (Note: Q equals the total quantity of scooters produced by all factories.)

Number of Factories	Average Total Cost
(Dollars per scooter)
Q = 25	Q = 50	Q = 75	Q = 100	Q = 125	Q = 150
1	140	60	40	80	160	320
2	230	110	40	40	110	230
3	320	160	80	40	60	140

Suppose Scooter's Scooters is currently producing 50 scooters per month in its only factory. Its short-run average total cost is

per scooter.

Suppose Scooter's Scooters is expecting to produce 50 scooters per month for several years. In this case, in the long run, it would choose to produce scooters using .

On the following graph, plot the three SRATC curves for Scooter's Scooters from the previous table. Specifically, use the green points (triangle symbol) to plot its SRATC curve if it operates one factory (SRATC1SRATC1); use the purple points (diamond symbol) to plot its SRATC curve if it operates two factories (SRATC2SRATC2); and use the orange points (square symbol) to plot its SRATC curve if it operates three factories (SRATC3SRATC3). Finally, plot the long-run average total cost (LRATC) curve for Scooter's Scooters 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.

SRATC1SRATC2SRATC3LRATC025507510012515017540036032028024020016012080400AVERAGE TOTAL COST (Dollars per scooter)QUANTITY (Scooters)

In the following table, indicate whether the long-run average cost curve exhibits economies of scale, constant returns to scale, or diseconomies of scale for each range of scooter production.

Range	Economies of Scale	Constant Returns to Scale	Diseconomies of Scale
More than 100 scooters per month
Between 75 and 100 scooters per month
Fewer than 75 scooters per month

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