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 = (change in quantity supplied / midpoint quantity) x 100%
% change in price = (change in price / midpoint price) x 100%

Midpoint quantity = (400 + 600) / 2 = 500
Midpoint price = ($10 + $12) / 2 = $11

% change in quantity supplied = (600 - 400) / 500 x 100% = 40%
% change in price = ($12 - $10) / $11 x 100% = 18.18%

Price elasticity of supply = % change in quantity supplied / % change in price
Price elasticity of supply = 40% / 18.18% = 2.2

Therefore, the price elasticity of supply is about 2.2.

A Manufacturer Produces 400 Units When the Market Price Is