A manufacturer produces 400 units when the market price of $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

The midpoint method formula for calculating price elasticity of supply is:

Price elasticity of supply = (Percentage change in quantity supplied) / (Percentage change in price)

Using the given information, we can calculate the percentage change in quantity supplied as follows:

[(600 - 400) / ((600 + 400) / 2)] x 100% = 33.33%

And the percentage change in price is:

[(12 - 10) / ((12 + 10) / 2)] x 100% = 16.67%

Substituting these values into the formula, we get:

Price elasticity of supply = 33.33% / 16.67% = 2.00

Therefore, the price elasticity of supply is approximately 2.2, which means that quantity supplied is relatively responsive to changes in price.

A Manufacturer Produces 400 Units When the Market Price of $10