23.03.2023 - 23:41

An increase in the market price of men’s haircuts from $15 to $25 per haircut initially causes a local barbershop to have its employees work overtime to increase the number of daily haircuts provided from 25 to 30. When the $25 market price remains unchan

An increase in the market price of men’s haircuts from $15 to $25 per haircut initially causes a local barbershop to have its employees work overtime to increase the number of daily haircuts provided from 25 to 30. 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 45 haircuts per day. What is the short-run price elasticity of supply?

Answers (1)
  • chasey
    April 4, 2023 в 00:20

    The short-run price elasticity of supply measures the responsiveness of the quantity supplied to a change in price in the short run. In this scenario, we can calculate the short-run price elasticity of supply as follows:

    First, we need to calculate the percentage change in quantity supplied. Initially, the barbershop provided 25 haircuts per day, and after the price increase, it increased its output to 30 haircuts per day. Therefore, the percentage change in quantity supplied is:

    ((30-25)/25) x 100% = 20%

    Next, we need to calculate the percentage change in price. The price increased from $15 to $25, which is a percentage change of:

    ((25-15)/15) x 100% = 66.67%

    Now we can use the formula for price elasticity of supply, which is:

    Price Elasticity of Supply = Percentage Change in Quantity Supplied / Percentage Change in Price

    Plugging in the numbers, we get:

    Price Elasticity of Supply = 20% / 66.67% = 0.30

    Therefore, the short-run price elasticity of supply is 0.30, indicating that the quantity supplied is relatively inelastic in response to the price change. This means that the barbershop was not able to increase its output significantly in the short run, despite the price increase, and it was only able to do so in the long run by hiring additional employees.

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