Question

An industry has 1000 competitive firms, each producing 50 tons of output. At the current market price of $10, half of the firms have a short-run supply curve with a slope of 1; the other half each have a short-run supply curve with slope 2. The short-run elasticity of market supply is:A) 1/50

B) 3/10

C) 1/5

D) 2/5

E) none of the above

Answer 1

B) 3/10

Step-by-step explanation:

The short run supply curve is a part of marginal cost curve that lies above average variable cost curve. The supply in the short run is inelastic because production can not be adjusted in the short run based on the supply. In the given scenario the competitive firms have output of 50 tons and current market price for each ton is $10. The half firms have slope 1 and the other half firms have slope 2. The short elasticity will be 3/10 in the short run.