Question

The following graph shows the supply of a good. 

For each of the regions, use the midpoint method to identify whether the supply of this good is elastic or inelastic. 

True or False: For high levels of quantity supplied where firms have reached near maximum capacity, supply becomes more elastic because firms may need to invest in additional capital in order to increase production further.

Answer 1

Between Y and Z - inelastic

Between W and X- elastic

When % change in price is greater than % change in quantity supplied, supply is inelastic.

False- supply becomes more inelastic at higher levels of production.