Answer:
Price elasticity of supply is 1.5
Explanation:
Given:
Price (P₀) = $3.50
Quantity (Q₀) = 450
New price (P₁) = $4.00
New quantity (Q₁) = 550
Price elasticity of supply = ?
Computation of price elasticity of supply using midpoint method:
[tex]Price\ elasticity\ of\ supply =\frac{\frac{Q1-Q0}{\frac{Q1+Q0}{2} } }{\frac{P1-P0}{\frac{P1+P0}{2} } }[/tex]
[tex]Price\ elasticity\ of\ supply =\frac{\frac{550-450}{\frac{550+450}{2} } }{\frac{4-3.5}{\frac{4+3.5}{2} } }[/tex]
[tex]Price\ elasticity\ of\ supply =\frac{\frac{100}{500} }{\frac{0.50}{3.75} }\\\\Price\ elasticity\ of\ supply = 1.5[/tex]
