At a price of $150, a cell phone company manufactures 200,000 units

Economics Dec 23, 2020

At a price of $150, a cell phone company manufactures 200,000 units. At a price of $250, the company manufactures 400,000 units. What is the price elasticity of supply?

a. 0

b. 0.75

c. 0.80

d. 1.33

Expert Solution

Here, P1 = 150, Q1 = 200,000, P2 = 250, and Q2 = 400, 000. Therefore,

The elasticity of supply = % Change in quantity supplied / % Change in the price.

In this case, % change in the quantity supplied = Q2 - Q1 / Q1 * 100 = (400,000 - 200,000 / 200,000) * 100 which is 100.

Similarly, % change in the price level = P2 - P1 / P1 * 100 = (250 - 150 / 150) * 100 which is 66.67.

Henceforth, Elasticity of Supply = 100 / 66.67 which is 1.33 (approximately).

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