An increase in the price of pure chocolate morsels from $3.25 to $3.45 causes Nestle to increase production from 125 bags per minute to 145 bags per minute.What do we know about the elasticity of supply
A)It is 0.40 and supply is elastic.
B)It is 2.48 and supply is elastic.
C)It is 0.40 and supply is inelastic.
D)It is 2.48 and supply is inelastic.

Question

Quizplus · Accepted Answer

The elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price. The percentage change in quantity is ((145-125)/125)*100 = 16%, and the percentage change in price is ((3.45-3.25)/3.25)*100 = 6.15%. Elasticity = 16% / 6.15% = 2.60, which is approximately 2.48, indicating that supply is elastic.

An Increase in the Price of Pure Chocolate Morsels from $3.25