An increase in the market price of men\'s haircuts, from $20 per haircut to $30

Question

An increase in the market price of men's haircuts, from $20 per haircut to $30 per haircut, initially causes a local barbershop to have its employees work overtime to increase the number of daily haircuts provided from 35 to 40. When the $30 market price remains unchanged for several weeks and all other things remain equal as well, the barbershop hires additional employees and provides 55 haircuts per day. What is the short-run price elasticity of supply? Your answer should have two decimal places.

Explanation / Answer

Price elasticity = (P1 + P2)/(Q1 + Q2) x (Q2 - Q1)/(P2 - P1)

Q2 = 40, Q1 = 35

P2 = 30, P1 = 20

SR price elasticity = 50/75 x 5/10 = 0.33

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