At a price of $4, quantity supplied is 100; and at a price of $6, quantity...

At a price of $4, quantity supplied is 100; and at a price of $6, quantity supplied is 120. Using
the midpoint formula, compute the price elasticity of supply is and explain supply is elastic or inelastic. What is the elasticity of supply based on percentage method? Marks 4

Expert Solution

Price	Quantity
4	100
6	120

(P1-P2)/(P1+P2)/2	(Q1-Q2)/(Q1+Q2)/2
-0.4	-0.18182
elasticity	chg in Q/chg in P
by midpoint method	0.454545

Percentage method

Percentage change in quantity supplied/Percentage change in price

((Q2-Q1)/Q1)*100 / ((P2-P1)/P1)*100

20/50
elasticity =0.4

As elasticity is less than 1, supply is inelastic. It means change in price will have smaller change in quantity supplied. In such cases supplier should increase price to maximise revenue.

Rahul Sunny answered 2 years ago

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