Chapter 4: Currently, at a price of $0.50 each, 200 popsicles are sold per day i
ID: 1223588 • Letter: C
Question
Chapter 4:
Currently, at a price of $0.50 each, 200 popsicles are sold per day in the perpetually hot town of Rostin. Consider the elasticity of supply. In the short run, a price increase from $0.50 to $1 is unit-elastic (Es = 1). In the long run, a price increase from $0.50 to $1 has an elasticity of supply of 1.5. (Hint: Apply the midpoints approach to the elasticity of supply.)
Instructions: Enter only a whole number for your answer.
A) How many popsicles will be sold each day in the short run if the price rises to $1 each? per day
Instructions: Enter only a whole number for your answer.
B)How many popsicles will be sold per day in the long run if the price rises to $1 each? per day
Explanation / Answer
A.
Es in the short-run = [(Q2 – Q1) / {(Q1 + Q2) / 2}] ÷ [(P2 – P1) / {(P1 + P2) / 2}]
1 = [(Q2 – Q1) / (Q1 + Q2)] ÷ [(1 – 0.50) / (0.50 + 1)]
Q2 = 398
Answer: If the price is $1 each, 398 units would be sold per day.
B.
Es in the long-run = [(Q2 – Q1) / {(Q1 + Q2) / 2}] ÷ [(P2 – P1) / {(P1 + P2) / 2}]
1.5 = [(Q2 – Q1) / (Q1 + Q2)] ÷ [(1 – 0.50) / (0.50 + 1)]
Q2 = 600
Answer: If the price is $1 each, 600 units would be sold per day.
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