Question

A shoe factory has an elasticity of supply of 0.5 as the price of shoes rises from $50 to $75. If the factory produced 100,000 shoes at a market price of $50, how many will be produced at $75?

Answer 1

Explanation: As we know that ,

`Elasticity\:of\:supply\:=\:(percenatge\:change\:in\:quantity\:supplied)/(percenatge\:change\:in\:price)`

where,

`percenatge\:change\:in\:price\:=(75-50)/(50)`

= 50%

now, putting the value into equation we get,

`0.5\:=\:(percenatge\:change\:in\:quantity\:supplied)/(0.5)`

percentage change in quantity supplied = 0.25

therefore,

new quantity supplied = 100,000 (1+25%) = 125,000 units