A bakery would be willing to supply 500 donuts per day at a price of $0.50 each.At a price of $0.80,the bakery would be willing to supply 1,100 donuts.Using the midpoint method,the price elasticity of supply for donuts is about
A) 0.62, and supply is elastic.
B) 0.62, and supply is inelastic.
C) 1.63, and supply is elastic.
D) 1.63, and supply is inelastic.

Question

Quizplus · Accepted Answer

Using the midpoint method to calculate the price elasticity of supply:

%ΔQs = [(1100-500)/((1100+500)/2)]*100 = 57.14%
%ΔP = [(0.80-0.50)/((0.80+0.50)/2)]*100 = 37.5%

Elasticity of supply = %ΔQs / %ΔP = 57.14% / 37.5% = 1.52

Since the elasticity of supply is greater than 1, supply is elastic. However, we need to round the result to one decimal point, so the final answer is:

Choice C) 1.6, and supply is elastic.

A Bakery Would Be Willing to Supply 500 Donuts Per