Scenario 5.1
The demand for noodles is given by the following equation: Q = 20 - 4P + 0.2I - 2P x . Assume that P = $8, I = 200, and P x = $10.
-Acme Tools manufactures anvils, a forging tool. When the price of anvils was increased from $7 to $13, Acme Tools was willing and able to increase production from 1 to 4 units per day. Using the midpoint formula, what is Acme's price elasticity of supply for anvils?
A)2
B)1
C)0.5
D)4
E)3.5

Question

Quizplus · Accepted Answer

The price elasticity of supply is calculated using the midpoint formula: [(Q2 - Q1) / ((Q2 + Q1) / 2)] / [(P2 - P1) / ((P2 + P1) / 2)]. Substituting the given values: [(4 - 1) / ((4 + 1) / 2)] / [($13 - $7) / (($13 + $7) / 2)] = 3 / 2.5 / 6 / 10 = 3 / 1.5 = 2.

Scenario 5.1 The Demand for Noodles Is Given by the Following Equation