Question

Suppose the government decides to raise the gasoline tax as a way to reduce air pollution and traffic congestion to their optimal levels. (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 1 440 280 240 320 480 8002 620 380 240 240 380 6203 800 480 320 240 280 440Suppose 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__

Answer 1

SupposeSuppose Ike's Bikes is currently producing 600 bikes per month in its only factory. Its short-run average total cost is $800 per bike. Suppose the government raises the gasoline tax, it may increase the cost of transportation for the production of bikes, which can lead to an increase in the average cost of producing a bike. In the long run, Ike's Bikes would choose to produce bikes using the most efficient method, which would be the option with the lowest average total cost per bike. This may mean that Ike's Bikes would either invest in new technology or move production to a different factory location to reduce costs and maintain profitability.