Advertisements
Advertisements
Question
At the market price of Rs 10, a firm supplies 4 units of output. The market price increases to Rs 30. The price elasticity of the firm’s supply is 1.25. What quantity will the firm supply at the new price?
Advertisements
Solution
Initial Price, P1 = Rs 10
Initial Output, Q1 = 4 units
Final Price, P2 = Rs 30
ΔP = P2 − P1
= Rs 30 − 10 = Rs 20
Elasticity of supply, es = 1.25
`e_s=(DeltaQ)/(DeltaP)xxP_1/Q_1`
`rArr1.25=(DeltaQ)/20xx10/4`
⇒ 1.25 × 8 = ΔQ
⇒ ΔQ = 10 units
Thus final output supplied, Q2 = ΔQ + Q1
Q2 = 10 + 4 = 14 units
RELATED QUESTIONS
What does the price elasticity of supply mean? How do we measure it?
A firm earns a revenue of Rs 50 when the market price of a good is Rs 10. The market price increase to Rs 15 and the firm now earns a revenue of Rs 150. What is the price elasticity of the firm’s supply curve?
The market price of a good changes from Rs 5 to Rs 20. As a result, the quantity supplied by a firm increases by 15 units. The price elasticity of the firm’s supply curve is 0.5. Find the initial and final output levels of the firm.
What does price elasticity of supply measure?
If the price of a good rises by 10% and supply increases by 20%, what can be said about the elasticity of supply?
If elasticity of supply equals 1, how does the percentage change in quantity supplied compare to the percentage change in price?
What describes ‘contraction of supply’?
In the real-life example, if a shopkeeper increases supply by only 3% after a 10% rise in price, the supply is ______.
