An increase in the market price of men's haircuts, from $16 per haircut to $26 per haircut, initially causes a local barbershop to have its employees work overtime to increase the number of daily haircuts provided from 20 to 25

Economics Dec 13, 2020

An increase in the market price of men's haircuts, from $16 per haircut to $26 per haircut, initially causes a local barbershop to have its employees work overtime to increase the number of daily haircuts provided from 20 to 25. When the $26 market price remains unchanged for several weeks and all other things remain equal as well, the barbershop hires additional employees and provides 40 haircuts per day. What is the short-run price elasticity of supply?

Expert Solution

Price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price. In the short run, the percentage change in haircuts supplied is (25 - 20) / 20 = 25%. The percentage change in price of men's haircuts (26 - 16) / 16 = 62.5%. In this case, the price elasticity of supply is:

25% / 62.5% = 0.4
The short-run price elasticity of supply = 0.4

Archived Solution

Unlocked Solution

You have full access to this solution. To save a copy with all formatting and attachments, use the button below.

Already a member? Sign In

Important Note: This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.

For ready-to-submit work, please order a fresh solution below.

Or get 100% fresh solution

Get Custom Quote