In January, the price of dark chocolate candy bars was $2.00, and Willy's Chocolate Factory produced 80 pounds. In February, the price of dark chocolate candy bars was $2.50, and Willy's produced 110 pounds. In March, the price of dark chocolate candy bars was $3.00, and Willy's produced 140 pounds. Using the midpoint method, the price elasticity of supply of Willy's dark chocolate candy bars was about
A)0.70 when the price increased from $2.00 to $2.50 and 0.76 when the price increased from $2.50 to $3.00.
B)0.88 when the price increased from $2.00 to $2.50 and 1.08 when the price increased from $2.50 to $3.00.
C)1.42 when the price increased from $2.00 to $2.50 and 1.32 when the price increased from $2.50 to $3.00.
D)1.50 when the price increased from $2.00 to $2.50 and 1.18 when the price increased from $2.50 to $3.00.

Question

Quizplus · Accepted Answer

The price elasticity of supply (PES) using the midpoint method is calculated as the percentage change in quantity supplied divided by the percentage change in price. For the increase from $2.00 to $2.50, the change in quantity is from 80 to 110 pounds. The midpoint quantity is (110 + 80) / 2 = 95, and the midpoint price is ($2.50 + $2.00) / 2 = $2.25. The percentage change in quantity is (110 - 80) / 95 = 0.316, and the percentage change in price is ($2.50 - $2.00) / $2.25 = 0.222. Thus, PES = 0.316 / 0.222 ≈ 1.42. For the increase from $2.50 to $3.00, the change in quantity is from 110 to 140 pounds. The midpoint quantity is (140 + 110) / 2 = 125, and the midpoint price is ($3.00 + $2.50) / 2 = $2.75. The percentage change in quantity is (140 - 110) / 125 = 0.24, and the percentage change in price is ($3.00 - $2.50) / $2.75 = 0.182. Thus, PES = 0.24 / 0.182 ≈ 1.32.

In January, the Price of Dark Chocolate Candy Bars Was