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7'. 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

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7'. 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 shortrun 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.) Average Total Cost (Dollars per bike) Number of Factories Q = 100 Q = 200 Q = 300 Q = 400 Q = 500 Q = 600 1 440 320 240 320 480 F20 2 580 400 240 240 400 580 3 720 480 3 20 240 320 440 Suppose Ike's Bikes is currently producing 600 bikes per month in its only factory. Its shortrun 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 7 . On the following graph, plot the three short-run average total cost (SRATC) curves 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, ); 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 (LRATO) 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. 800 A 720 SRATC 640 560 SRATC, 480 -O- AVERAGE TOTAL COST (Dollars per bike) 400 320 SRATC, 240 160 LRATC 80 100 400 700 300 500 600 200 QUANTITY OF OUTPUT (Bikes)In the long run, over which range of output levels does Ike's Bikes experience constant returns to scale? O More than 400 bikes per month 0 Between 300 and 400 bikes per month 0 Fewer than 300 bikes per month

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