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Costs in the short run versus in the long run Cloud Nine is a shoe manufacturer in Memphis, specializing in running shoes. Currently, the company produces all of its shoes 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 shoes produced by all factories.) Number of Factories Average Total Cost (Dollars per shoe) Q = 50 Q = 100 Q = 150 Q = 200 Q = 250 Q = 300 122014012016024040023101901201201903103400240160120140220 Suppose Cloud Nine is currently producing 300 shoes per month in its only factory. Its short-run average total cost is per shoe. Suppose Cloud Nine is expecting to produce 300 shoes per month for several years. In this case, in the long run, it would choose to produce shoes using   . On the following graph, plot the three SRATC curves for Cloud Nine 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 Cloud Nine 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. SRATC1SRATC2SRATC3LRATC05010015020025030035040036032028024020016012080400AVERAGE TOTAL COST (Dollars per shoe)QUANTITY (Shoes) 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 shoe production. Range Economies of Scale Constant Returns to Scale Diseconomies of Scale Between 150 and 200 shoes per month Fewer than 150 shoes per month More than 200 shoes per month

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