Please solve part a & b! ADVANCED ANALYSIS Currently, at a price of $1 each, 300
ID: 1137097 • Letter: P
Question
Please solve part a & b!
ADVANCED ANALYSIS Currently, at a price of $1 each, 300 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 $1 to $2 is unit-elastic (Es-1). In the long run, a price increase from $1 to $2 has an elasticity of supply of 1.50. (Hint: Apply the midpoints approach to the elasticity of supply.) Instructions: Enter your answers as whole numbers. a. How many popsicles will be sold each day in the short run if the price rises to $2 each? per day b. How many popsicles will be sold per day in the long run if the price rises to $2 each? per dayExplanation / Answer
Using mid-point method,
Elasticity of supply (Es) = (Change in Quantity / Average quantity) / (Change in price / Average price)
(a) Es = 1 and if Q be the new number of popsicles sold, then
1 = [(Q - 300) / (Q + 300)] / [$(2 - 1) / $(2 + 1)]
1 = [(Q - 300) / (Q + 300)] / (1/3)
1 = 3 x [(Q - 300) / (Q + 300)]
Q + 300 = 3Q - 900
2Q = 1200
Q = 600
(b) Es = 1.5 and if Q be the new number of popsicles sold, then
1.5 = [(Q - 300) / (Q + 300)] / [$(2 - 1) / $(2 + 1)]
1.5 = [(Q - 300) / (Q + 300)] / (1/3)
1.5 = 3 x [(Q - 300) / (Q + 300)]
1.5Q + 450 = 3Q - 900
1.5Q = 1350
Q = 700