Question

“New drive-in movie theatres could be popping up by June” (Griffin, K., Vancouver Sun Newspaper, Thursday, May 14, 2020, p. A3). Suppose that extensive and careful research tells us that the actual Inverse Supply curve for the new “Drive-In Movie” theatre is P = 5.34768 + 0.106954[QS] i. Given the Inverse Supply curve above, Determine the Normal Supply curve AND the Quantity Supplied, QS at the Price, P of $39.04. ii. Using the Point Elasticity form, determine the Price Elasticity of Supply with the Quantity Supplied, QS and Price, P, given in Part i above. iii. Given the SIGN and the MAGNITUDE (number) found in part (ii), Briefly explain the interpretation or meaning of the sign AND of the magnitude or number, or value calculated.

Answer 1

Given, Inverse supply function: P = 5.34768 + 0.106954Q_s

(i) Supply function will be quantity in terms of price so

0.106954Q_s = P - 5.34768

=> Qs = P/0.106954 - 5.34768 / 0.106954

=> Q_s = P/0.106954 - 49.9998

(ii) Price, P= $39.04

So, Q_s= 39.04 / 0.106954 - 49.9998

=> Q_s= 365.0167 - 49.9998

=> Q_s= 315.0169

=> 1/0.106954

=> 9.3498

So point elasticity is

Es = 9.3498 * 39.04 / 315.0169

=> 1.158

(iii) The elasticity of supply is positive and highly elastic. This means an increase in price leads to a high supply of goods also an increase in wages leads to more supply of laborers.