Question

Price elasticity of supply of a good is 2. A producer supplies 100 units of a good at a price of Rs 20 per unit. At what price will he supply 80 units?

Answer 1

Given

E_s=2

Actual Quantity (Q₀)=100

Actual Price (P₀)= Rs 20

New in Quantity (Q₁)= 80

Change in Quantity Supplied (ΔQ)=Q₁-Q₀=80-100 = - 20

New in Price (P₁) = ??

`E_s=(+)(DeltaQ)/(DeltaP)xxP_0/(Q_0)`

`2=(+)(-20)/(DeltaP)xx20/100`

ΔP=-2

We know that

ΔP=P₁-P₀

So -2=P₁-20

∴P₁=18

Hence, new price is Rs 18. The seller will supply 80 units at Rs 18 per unit