Question

A firm supplied 500 units of a commodity at a price of Rs. 5 per unit. The price elasticity of supply is 3. At what price will the firm supply 700 units?

Answer 1

Given, $e_s=2$

$\begin{array}{cc}\text{Price}& \text{Supply}\\ 5& 500\\ ?& 700\end{array}$

$e_s=\frac{\Delta q_s}{\Delta p}.\frac{p}{q_s}$

$2=\frac{200}{\Delta p}\times \frac{5}{500}$

$\Delta p=\frac{1000}{1000}=1$

New price = 5+1 = Rs. 6