Suppose the price of potatoes fell from 50 a crate to 30 a c

Suppose the price of potatoes fell from $50 a crate to $30 a crate. A typical potato farmer supplies 135 crates a day at $50 a crate, but at $30 a crate would supply 65 crates a day. The price elasticity of supply of potatoes is If the price of potatoes remains at $30 a crate, the elasticity of supply will over the coming years. become more elastic

Solution

Price elasticity of supply = % change in quantity supplied / % change in price

= [(65 - 135) / 135] / [$(30 - 50) / $50]

= 0.5185 / 0.4

= 1.2960

~ 1.3

If price remains unchanged at $30 in future, suppliers will become less responsive to price change in the long run, so supply will be less elastic.

Correct option (C).