An increase in the market price of men\'s hairouts, from $12 per haircut to $22

Question

An increase in the market price of men's hairouts, from $12 per haircut to $22 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 $22 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 sho tan price elasticity of supply? Your answer should have two decimal places.)

Explanation / Answer

Using mid-point method,

Elasticity = (Change in quantity supplied / Average quantity supplied) / (Change in price / Average price)

= [(30 - 25) / (30 + 25) / 2] / [$(22 - 12) / $(22 + 12) / 2]

= [5 / (55 / 2)] / [$10 / ($34 / 2)]

= (5 / 27.5) / (10 / 17)

= 0.31

NOTE: Using point elasticity formula,

Elasticity = % Change in quantity supplied / % Change in price

= [(30 - 25) / 25] / [$(22 - 12) / $12]

= [5 / 25] / [$10 / $12]

= 0.24

Since exact method of calculation is not specified, both methods are shown.

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