Question

The price of cheddar cheese rises from $1 per pound to $2 per pound, and as a result, producers of cheese increase their production from 5 thousand tons per month to 55 thousand tons per month. What is the arc price elasticity of supply

Answer 1

the arc price elasticity of supply is
`(5)/(2)`

Step-by-step explanation:

Given:

P1: $1 and Q1 = 5 thousand tons

P2:$2 and Q2 = 55 thousand tons

We need to find:

%ΔQ =
`(Q2-Q1)/((Q1+Q2)/2)` =
`(55-5)/((55+5)/2)` =
`(5)/(3)`

%ΔP =
`(P2-P1)/((P1+P2)/2)` =
`(2-1)/((1+2)/2)` =
`(2)/(3)`

As we know that, the arc price elasticity of supply :

E = %ΔQ / %ΔP

<=> E =
`(5)/(3) /(2)/(3)` =
`(5)/(2)`