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.

Question

Quizplus · Accepted Answer

Using the midpoint method, we can calculate the price elasticity of supply as follows:

% change in quantity supplied = ((600-400)/(600+400))/2 = 0.1

% change in price = (12-10)/(12+10)/2 = 0.0909

Elasticity of supply = % change in quantity supplied ÷ % change in price = 0.1 ÷ 0.0909 = 1.1

Since the elasticity of supply is greater than 1, it is considered elastic. Therefore, the best choice is (C) 2.2.

A Manufacturer Produces 400 Units When the Market Price Is