Question

A firm supplies 10 units of a good at a price of Rs 5 per unit. Price elasticity of supply is 1.25. What quantity will the firm supply at a price of Rs 7 per unit?

Answer 1

As given in the question,
Q_s = 10, P = 5 and E_s = 1.25
At new price of Rs 7 per unit
ΔP = 7 - 5 = 2
We know,
`E_s=(ΔQ)/(ΔP)xxP/Q`

or, `1.25=(ΔQ)/2xx5/10`

or, ΔQ = 1.25 x 4 = 5

Thus, the new quantity that the firm would supply at a price of Rs 7 per unit is 15 (5+10).