Question

Paolo owns a pizza shop. The price of pizza recently increased from $3 to $5 a slice. Paolo responded by increasing the quantity of slices he supplied from 100 to 150 slices per day. By the midpoint method, Paolo's price elasticity of supply is:_______.

Answer 1

Paolo's price elasticity of supply is 0.80.

Step-by-step explanation:

From the question, we have:

New quantity supplied = 150

Old quantity supplied = 100

New price = $5

Old price = $3

Generally, the formula for calculating the price elasticity of supply is as follows:

Price elasticity of supply = Percentage change in quantity supplied / Percentage change in price ................ (1)

Where, based on the midpoint formula, we have:

Percentage change in quantity supplied = {(New quantity supplied - Old

quantity supplied) / [(New quantity supplied + Old quantity supplied) /

2]} * 100 = {(150 - 100) / [(150 + 100) / 2]} * 100 = 40%

Percentage change in price = {(New price - Old price) / [(New price + Old

price) / 2]} * 100 = {(5 - 3) / [(5 + 3) / 2]} * 100 = 50%

Substituting the values into equation (1), we have:

Price elasticity of supply = 40% / 50% = 0.80

Therefore, Paolo's price elasticity of supply is 0.80.