In the short-run Ikes Bikes only has one factory. The short-run cost is a term in economics where at least one factor of production is fixed. Long-run costs allow for all factors of production to be variable. Fixed costs are things like the number of factories or the amount of machinery that a company has while in the short-run other costs can vary such as the amount that material may cost depending on how many units you may buy.
In this example, the short-run fixed cost is clearly the number of factories - being fixed to one (the number they currently have) in the short-run. The answer to the first question is "560" (per bike).
In the long-run, the company would choose to use 3 factories as the cost where Q = 500 is now only 320 compared to 560 when only 1 factory is used. In the long-run the company can open more factories with all their factors of production being variable and therefor save on costs.
Dec 27th, 2014
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