Question

At price of $1.20, a local pencil manufacturer is willing to supply 150 boxes per day. At a price of $1.40, the manufacturer is willing to supply 170 boxes per day. Using the midpoint method, the price elasticity of supply is about ______

A. 1.00.
B. 2.0.
C. 1.23.
D. 0.81.

Answer 1

D. 0.81.

Step-by-step explanation:

The computation of the price elasticity of supply using mid point formula is shown below:

= (change in quantity supplied ÷ average of quantity supplied) ÷ (percentage change in price ÷ average of price)

where,

Change in quantity supplied is

= Q2 - Q1

= 170 -150

= 20

And, the average of quantity supplied would be

= (170 + 150) ÷ 2

= 160

Change in price would be

= P2 - P1

= $1.40 - $1.20

= $0.20

And, an average of price is

= ($1.40 + $1.20) ÷ 2

= $1.3

So, after solving this, the price elasticity of supply is 0.81