Question

In: Economics

When the Gizmo Company could sell a gizmo for​ $10, it produced​ 2,500 per month. More​...

When the Gizmo Company could sell a gizmo for​ $10, it produced​ 2,500 per month. More​ recently, the price of a gizmo has fallen to​ $9 and so Gizmo is only producing​ 2,000 units per month. What is the price elasticity of supply for​ gizmos?

A.

minus−0.47

B.

0.47

C.

minus−2.11

D.

2.11

Solutions

Expert Solution

Ans: 2.11

Explanation:

P1 = 10       Q1 = 2500

P2 = 9         Q2 = 2000

Price elasticity of supply = (Q2 - Q1) / (P2 - P1) * (P1 + P2) / (Q1 + Q2)

                                       = (2000 - 2500) / (9 - 10) * (10 + 9) / (2500 + 2000)

                                       = (-500 / -1) * (19 / 4500)

                                       = -9500 / -4500

                                       = 2.11

Thus, option [D] is correct answer.

                      

Rahul Sunny answered 1 month ago
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