Question

In MikesBikes, the capacity of your factory is measured in Standard Capacity Units (SCU). What is the total capacity of your factory before making any adjustments (as seen in Video 4: Making your third-year decisions)?

a) 100 SCU
b) 150 SCU
c) 200 SCU
d) 250 SCU

Answer 1

The total factory capacity in MikesBikes before adjustments is 200 SCU, as seen in the simulation game's third-year decision-making video. Understanding economies of scale, where larger production volumes reduce the average cost, is essential in strategy planning for such simulations.

Step-by-step explanation:

In the context of the simulation game MikesBikes, the total capacity of your factory in Standard Capacity Units (SCU) before making any adjustments as seen in Video 4: Making your third-year decisions is 200 SCU (c). This capacity allows the firm to plan for current and future production levels. Understanding the concept of economies of scale is critical when managing capacity, as larger production volumes can lead to lower average costs.

For instance, economies of scale are highlighted by three different factory sizes in the provided example. A small factory (S) produces 1,000 alarm clocks with an average cost of $12 per clock, while a medium factory (M) produces 2,000 alarm clocks for $8 each.

However, a large factory (L) is able to produce 5,000 alarm clocks and further reduce the average cost to $4 per clock. This demonstrates how increasing the scale of production can effectively lower the average costs, which is beneficial for business strategy within MikesBikes.