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Answer :
Final answer:
The price elasticity of supply in this case can be calculated using the formula: % change in quantity supplied / % change in price. With a price increase of 20% and quantity supplied increase of 25%, the price elasticity of supply is 1.25.
Explanation:
The price elasticity of supply is a measure of how much the quantity supplied of a good changes when its price changes. It's calculated by the formula: % change in quantity supplied / % change in price.
In this case, the change in price is from $5 to $6, which is a change of 20% ((6-5)/5). The change in quantity supplied is from 400 kilos to 500 kilos, which is a change of 25% ((500-400)/400).
Therefore, the price elasticity of supply is 25% / 20% = 1.25.
So, the answer is D) 1.25.
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