Question

A shoe factory has an elasticity of supply of .5 as the price if shoes raises from $50 to $75. if the factory produced 100,000 shoes at a market price of $50, how many will be produced at the new price

Answer 1

E S ( elasticity of supply ) = .5 ( supply is inelastic: E S < 1 )

The formula is:

E S = Δ Q / Δ P * P / Q,

where: Δ Q is the change in quantity, Δ P is change in price, P is initial price and Q is initial quantity.

.5 = Δ Q / 25 * 50 / 100,000

Δ Q = .5 * 25 * 100,000 / 5

Δ Q = 25,000

Quantity at the new price: Q ( new ) = 100,000 + 25,000 = 125,000

Answer 2

E S ( elasticity of supply ) = .5 ( supply is inelastic: E S < 1 )
The formula is:
E S = Δ Q / Δ P * P / Q,
where: Δ Q is the change in quantity, Δ P is change in price, P is initial price and Q is initial quantity.
.5 = Δ Q / 25 * 50 / 100,000
Δ Q = .5 * 25 * 100,000 / 5
Δ Q = 25,000
Quantity at the new price: Q ( new ) = 100,000 + 25,000 = 125,000