An increase in the market price of men’s haircuts, from $15 per haircut to $25 p

Question

An increase in the market price of men’s haircuts, from $15 per haircut to $25 per haircut, initially causes a local barbershop to have employees work overtime to increase the number of daily haircuts provided from 35 to 45. When the $25 market price remains unchanged for several weeks and all other things remain equal as well, the barbershop hires additional employees and provides 65 haircuts per day. What is the shirt run price elasticity of supply? What is the long run price elasticity of supply? An increase in the market price of men’s haircuts, from $15 per haircut to $25 per haircut, initially causes a local barbershop to have employees work overtime to increase the number of daily haircuts provided from 35 to 45. When the $25 market price remains unchanged for several weeks and all other things remain equal as well, the barbershop hires additional employees and provides 65 haircuts per day. What is the shirt run price elasticity of supply? What is the long run price elasticity of supply?

Explanation / Answer

The formula for the elasticity of supply is e = % change in quantity supplied / % change in price.

Short run Elasticity:

Change in price = (25 - 15) / 15 = 0.67

Change in quantity = (45 - 35) / 35 = 0.286

Elasticity in short run = 0.286 / 0.67 = 0.426

Long run elasticity:

Change in quantity = (65 - 35) / 35 = 0.857

Elasticity in long run = 0.857 / 0.67 = 1.28

Hence the elasticity of supply is much more elastic in the long run i.e 1.28, than in the short run i.e 0.426.

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