Question

In January the price of dark chocolate candy bars was $2.00, and Willy’s Chocolate Factory produced 80 pounds. In February the price of dark chocolate candy bars was $2.50, and Willy’s produced 110 pounds. In March the price of dark chocolate candy bars was $3.00, and Willy’s produced 140 pounds. The price elasticity of supply of Willy’s dark chocolate candy bars was abouta.0.70 when the price increased from $2.00 to $2.50 and 0.76 when the price increased from $2.50 to $3.00.b.0.88 when the price increased from $2.00 to $2.50 and 1.08 when the price increased from $2.50 to $3.00.c.1.42 when the price increased from $2.00 to $2.50 and 1.32 when the price increased from $2.50 to $3.00.d.1.50 when the price increased from $2.00 to $2.50 and 1.18 when the price increased from $2.50 to $3.00.

Answer 1

Answer:

The answers are:

When the price increased from $2.00 to $2.50 the PES was 1.5

When the price increased from $2.50 to $3.00 the PES was 1.36

Explanation:

The formula used to calculate price elasticity of supply (PES) is:

PES = [(New Quantity Supplied – Old Quantity Supplied)/(Old Quantity Supplied)] / [(New Price – Old Price)/(Old Price)]

PES = % change in quantity / % change in price

When the price increased from $2.00 to $2.50 the PES was:

PES = [(110 - 80) / 80] / [(2.50 - 2.00) / 2.00] = 1.5

When the price increased from $2.50 to $3.00 the PES was:

PES = [(140 - 110) / 110] / [(3.00 - 2.50) / 2.50] = 1.36