Question

A t-shirt maker would be willing to supply 75 t-shirts per day at a price of $18.00 each. At a price of $20.00, the t-shirt maker would be willing to supply 100 t-shirts. Using the midpoint method, the price elasticity of supply for t-shirts is about a. 0.37, and supply is elastic. b. 0.37, and supply is inelastic. x. 2.71, and supply is elastic. d. 2.71, and supply is inelastic.

Answer 1

c. 2.71, and supply is elastic.

Step-by-step explanation:

The formula to compute the price elasticity of supply is shown below:

Price elasticity of supply = (Percentage change in quantity supplied ÷ percentage change in price)

where,

Change in quantity supplied is

= Q2 - Q1

= 100 t-shirts - 75 t-shirts

= 25 t-shirts

And, an average of quantity supplied is

= (100 + 75) ÷ 2

= 87.5

Change in price is

= P2 - P1

= $20 - $18

= $2

And, the average of price is

= ($20 + $18) ÷ 2

= 19

So, after solving this, the price elasticity of supply is 2.71