At a price of $300, a cell phone company manufactures 100,000 phones

We can use the mid-point method to compute the price elasticity. The percentage change in price is:

• (400 - 300) / ((400 + 300) / 2) = 0.286

The percentage change in quantity supplied is:

• (300,000 - 100,000) / ((300,000 + 100,000) / 2) = 1

The price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price, i.e.,

• 1 / 0.286 = 3.5

Price Elasticity of Supply:

The price elasticity of supply measures the sensitivity of quantity supplied with respect to price. By the law of supply, the price elasticity of supply is always positive.