Question

The store sells 500 loaves/day at a price of $0.50/each. at a price of $0.80, the store is willing to supply 1,100. using the midpoint method, the elasticity of supply with respect to sales would be

a. 0.77.
b. 1.63.
c. 0.61.
d. 1.24.

Answer 1

The elasticity of supply using the midpoint method is calculated to be 1.63, indicating a relatively elastic supply response to price changes. This is determined by dividing the percentage change in quantity supplied by the percentage change in price. Option b. 1.63 is the correct answer.

Step-by-step explanation:

The question inquires about calculating the elasticity of supply using the midpoint method. To calculate this, we need to know the percentage change in quantity supplied and the percentage change in price. The formula for the midpoint elasticity of supply is:

Elasticity of Supply = (Percentage Change in Quantity Supplied) / (Percentage Change in Price)

The calculation steps are as follows:

1. Calculate the average of the initial and final quantities: (500 + 1100) / 2 = 800.
2. Calculate the average of the initial and final prices: (0.50 + 0.80) / 2 = 0.65.
3. Find the change in quantity: 1100 - 500 = 600.
4. Find the change in price: 0.80 - 0.50 = 0.30.
5. Calculate the percentage change in quantity: (600 / 800) * 100 = 75%.
6. Calculate the percentage change in price: (0.30 / 0.65) * 100 = 46.15%.
7. Divide the percentage change in quantity by the percentage change in price: 75% / 46.15% ≈ 1.63.

Therefore, the elasticity of supply with respect to price is 1.63, indicating it is relatively elastic since the value is greater than one. The correct answer to the question is option b. 1.63.