Question

The price of cheddar cheese rises from $1 per pound to $2 per pound, and as a result, producers of cheese increase their production from 5 thousand tons per month to 55 thousand tons per month. What is the arc price elasticity of supply

Answer 1

Answer:

the arc price elasticity of supply is $\frac{5}{2}$

Explanation:

Given:

P1: $1 and Q1 = 5 thousand tons

P2:$2 and Q2 = 55 thousand tons

We need to find:

%ΔQ = $\frac{Q2-Q1}{(Q1+Q2)/2}$ = $\frac{55-5}{(55+5)/2}$ = $\frac{5}{3}$

%ΔP = $\frac{P2-P1}{(P1+P2)/2}$ = $\frac{2-1}{(1+2)/2}$ = $\frac{2}{3}$

As we know that, the arc price elasticity of supply :

E = %ΔQ  / %ΔP

<=> E = $\frac{5}{3} /\frac{2}{3}$ = $\frac{5}{2}$