Question

A manufacturer produces 400 units when the market price is $10 per unit and produces 600 units when the market price is $12 per unit. Using the midpoint method, for this range of prices, the price elasticity of supply is about:
A. 0.45.
B. 2.0.
C. 2.2.
D. 200.

Answer 1

Answer:

C. 2.2.

Explanation:

Mid point elasticity is calculated as follows:

% change in qty supplied/ % change in price

% change in qty supplied

= (600-400)/(600+400)/2

= 0.4

% change in price

= (12 -10)/(12+10)/2

= 0.181

Mid point elasticity

= 0.4/0.18

=2.2

             

Answer 2

Answer: C. 2.20

Explanation:

Given the folliwing

At price(P1) = $10 per unit,

Quantity produced(Q1) = 400 units

When price(P2) = $12,

Quantity produced(Q2) = 600 units

The price elasticity of supply is used to determine how quantity supplied is affected by changes in the price of a commodity.

The midpoint method of determining price elasticity of supply :

(Percentage change in quantity supplied ÷ percentage change in price)

[(Q2-Q1) ÷((Q2+Q1)/2) ÷ (P2-P1)÷((P2+P1)/2)]

Percentage Change in quantity supplied = [(600-400)/(600+400)/2)] =200/500 = 0.4

Percentage change in price = [(12-10)/(12+10)/2]

= 2/11 = 0.1818

Therefore, price elasticity of supply = (0.4 ÷ 0.1818) = 2.20