question archive A candle manufacturer produces 4,000 units when the market price is $11 per unit and produces 6,000 units when the market price is $13 per unit
A candle manufacturer produces 4,000 units when the market price is $11 per unit and produces 6,000 units when the market price is $13 per unit
Subject:EconomicsPrice:2.88 Bought3
A candle manufacturer produces 4,000 units when the market price is $11 per unit and produces 6,000 units when the market price is $13 per unit. Using the midpoint method, for this range of prices, the price elasticity of supply is about
a. 6
b. 2.4.
c. 0.4
d. 0.67
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The answer is b.
The price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price. Using the mid-point method, we first compute the percentage change in quantity supplied, i.e.,
- percentage change in quantity supplied = (6,000 - 4,000) / ((6,000 + 4,000) / 2) = 40%
Applying the mid-point rule again, the percentage change in price is:
- (13 - 11) / ((13 + 11)/2) = 16.67%
The price elasticity of supply is then calculated as:
- price elasticity of supply = 40% / 16.67% = 2.4
