Question

ADVANCED ANALYSIS Currently, at a price of $0.50 each, 100 popsicles are sold per day in the perpetually hot town of Rostin. Consider the elasticity of supply. In the short run, a price increase from $0.50 to $1 is unit-elastic (Es = 1). In the long run, a price increase from $0.50 to $1 has an elasticity of supply of 1.50. (Hint: Apply the midpoints approach to the elasticity of supply.) Instructions: Enter your answers as whole numbers. a. How many popsicles will be sold each day in the short run if the price rises to $1 each?

Answer 1

Answer:

The new Quantity to be sold at $1 is 200 in the short run

Explanation:

The question is to determine the Popsicle sold each day in the short run for a price rise of $1

The formula to use for the Price elasticity of supply in short run

(New Quantity demanded - Old Quantity demanded )/ Old Quantity + New Quantity/ 2

÷

(New Price - Old Price) / (Old Price + New Price)/ 2

The formula can also be simply written as

[(Q2 – Q1)/{(Q1 + Q2)/2}] / [(P2 – P1)/{(P1 + P2)/2}]

Step 2: Solve using the formula

Old Quantity = 100

New Quantity = Q2

Old Price = 0.50

New Price = $1

Solve:

[(Q2 – 100)/{(100+ Q2)/2}] / [(1 – 0.50)/{(0.50 + 1)/2}] = 1

=100 + Q2= 3Q2-300

= 2Q2= 400

Q2= 400/2

Q2= 200

The new Quantity to be sold at $1 is 200