Question

ns. su 5. Suppose that the ingredients required to bring a slice of pizza to market and their respective costs are as listed in the table. Paper plate Flour Tomato sauce Cheese Labor (3 minutes @ $12/hour) 2 cents 8 cents 20 cents 30 cents 60 cents If these proportions remain the same no matter how many slices are made, and the inputs can be purchased in any quantities at the stated prices, draw the supply curve of pizza slices and compute the price elasticity.
as soon as possible please

Answer 1

Here the cost of inputs required to bring a slice of pizza is provided. Total cost of bringing 1 slice of pizza is

Cost (per slice) = 2 + 8 + 20 + 30 + 60 = ¢ 120

Cost per slice of pizza = $ 1.20

As it is mentioned that these proportions remain same no matter how many slices are made. Thus, for producing 1 slice of pizza will always require $ 1.20.

Hence, the marginal cost of producing pizza is constant at $ 1.20. So, the supply curve is a horizontal line at P = $ 1.20.

Price $ $ 1.20 Quantity

Refer the above diagram the supply curve (MC) is constant. A small change in price of Pizza would reduce the demand for pizza to zero(0). When the price of pizza is increased nominally then the quantity demanded also increases by very much(to the infinity). The price elasticity of supply is perfectly elastic. Therefore, price elasticity of supply

PES = oo

Price elasticity of demand = Infinity.

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