00:01
So this looks like a question about demand and supply, but really it's a question about elasticity, because elasticity governs revenue.
00:08
And a lot of the answer questions deal with elasticity as well.
00:12
And elasticity we know is the percentage change in quantity over the percentage change in price, right? it's a measure of how much quantity will respond to the change in price.
00:23
Now, the answer here is e, but in case that's all you want.
00:27
But now let me show you how i know e is.
00:30
Right and how the others are wrong, right? if i have a horizontal supply curve, quantity, and price, and the supply curve is, uh, looks like this, let's think about what happens to the elasticity, right? as the price increases ever so slightly, right? the first price is here and then the next price is like right there.
00:54
We have almost very close.
00:56
So we have the change in price is tiny.
01:00
Over a massive change in quantity, right? we have a very small change in price and a massive change in quantity because that supply curve is very, very flat.
01:11
As the supply curve gets flatter and flatter and flatter, right? this thing is going to infinity because the price change will only have the change by one penny and the quantity will change by an infinite amount, right? so a horizontal supply curve means the elasticity of supply.
01:30
Is infinite...