Question

At a price of $1.00, a local coffee shop is willing to supply 100 cinnamon rolls per day. At a price of $1.20, the coffee shop would be willing to supply 15 cinnamon rolls per day. Using the midpoint method, the price elasticity of supply is about
a) 0.45
b).0.90
c).1.11
d) 2.20

Answer 1

Answer:

Choice (d)=2.20

Explanation:

The midpoint formula for the price elasticity of supply is;

Price elasticity of supply=((Qf-Qi)/(Qf+Qi)÷2)÷((Pf-Pi)/(Pf+Pi)÷2)

where;

Qf-Final quantity supplied=15 cinnamon rolls per day

Qi=Initial quantity supplied=10 cinnamoon rolls per day

Pf=Final price=$1.20

Pi=Initial price=$1.00

Replacing;

Price elasticity of supply=((Qf-Qi)/(Qf+Qi)÷2)÷((Pf-Pi)/(Pf+Pi)÷2)

((15-10)/(15+10)÷2)÷((1.2-1)/(1.2+1)÷2)=(5/12.5)÷(0.2/1.1)

(5/12.5)×(1.1/0.2)=2.20