Suppose a seller produces Good B. For each question, select the correct answer from the dropdown box.(a) Suppose that when the price of Good B increases from $55 to $70, its quantity supplied increases from 56 units to 62 units. Using the midpoint formula, the price elasticity of supply is
Question
Suppose a seller produces Good B. For each question, select the correct answer from the dropdown box.(a) Suppose that when the price of Good B increases from 70, its quantity supplied increases from 56 units to 62 units. Using the midpoint formula, the price elasticity of supply is
Solution
The price elasticity of supply can be calculated using the midpoint formula, which is:
Elasticity = (Q2 - Q1) / ((Q2 + Q1) / 2) / (P2 - P1) / ((P2 + P1) / 2)
Where: Q1 = initial quantity supplied = 56 units Q2 = final quantity supplied = 62 units P1 = initial price = 70
Substituting these values into the formula, we get:
Elasticity = (62 - 56) / ((62 + 56) / 2) / (70 - 55) / ((70 + 55) / 2)
This simplifies to:
Elasticity = 6 / 59 / 15 / 62.5
So, the price elasticity of supply is approximately 0.101. This indicates that the supply is inelastic, meaning that the quantity supplied is not very responsive to changes in price.
Similar Questions
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