Holding all other factors constant and using the midpoint method,if a pencil manufacturer increases production from 40 to 50 boxes when price increases by 20 percent,then supply is
A) inelastic,since the price elasticity of supply is equal to .91.
B) inelastic,since the price elasticity of supply is equal to 1.1.
C) elastic,since the price elasticity of supply is equal to 0.91.
D) elastic,since the price elasticity of supply is equal to 1.1.

Question

Quizplus · Accepted Answer

The price elasticity of supply is calculated using the midpoint method as the percentage change in quantity supplied divided by the percentage change in price. The percentage change in quantity supplied is (50-40)/((50+40)/2) = 0.222, and the percentage change in price is 0.20. Thus, the elasticity is 0.222/0.20 = 1.11, which is greater than 1, indicating elastic supply.

Holding All Other Factors Constant and Using the Midpoint Method,if