Question

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.

Answer 1

Elasticity of Supply, e_s = 0.5

Initial Price, P₁ = Rs 5

Final price, P₂ = Rs 20

ΔP = P₂ − P₁

= 20 − 5

ΔP = 15

ΔQ = 15

`e_s=(DeltaQ)/(DeltaP)xxP_1/Q_1`

`rArr0.5=15/15xx5/Q_1`

`rArr0.5=5/Q_1`

`rArrQ_1=5/0.5=10 " units"`

Initial quantity = 10 units

Final quantity, Q₂ = ΔQ + Q₁

= 15 + 10

Therefore, Q₂ = 25 units