Own-Price Elasticity of Supply (E^s)

question 42

Short Answer

Own-Price Elasticity of Supply (E^s).
Suppose that the price of pizza increases from P₀=USD 6/pizza to P₁=USD 10/pizza, resulting in an increase in pizzas produced from Q₀= 10 pizzas to Q₁= 12 pizzas.
A. Calculate ε at the initial values of P and Q.
B. Is pizza supply elastic or inelastic? Demonstrate and explain.
C. Is the pizza firm in the immediate run, short run, or long run? Explain.

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Definitions:

Initial Cost

The amount of money spent to acquire or start up an asset or investment, excluding any subsequent costs for maintenance or operation.

Accumulated Depreciation

The total depreciation for a fixed asset that has been charged to expense since the asset was acquired and made available for use.

Machinery

Heavy industrial equipment used in the production of goods or for performing services, which can include machines for manufacturing, assembly, and packaging.

Fixed Asset Turnover Ratio

The number of sales dollars earned per dollar of fixed assets, computed by dividing sales by the average book value of fixed assets.