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?

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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, e_s = 1.25
⇒ 1.25 × 8 = ΔQ
⇒ ΔQ = 10 units
Thus final output supplied, Q₂ = ΔQ + Q₁
Q₂ = 10 + 4 = 14 units

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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?

Initial Price, P1 = Rs 10Initial Output, Q1 = 4 unitsFinal Price, P2 = Rs 30ΔP = P2 − P1= Rs 30 − 10 = Rs 20Elasticity of supply, es = 1.25⇒ 1.25 × 8 = ΔQ⇒ ΔQ = 10 unitsThus final output supplied, Q2 = ΔQ + Q1Q2 = 10 + 4 = 14 units

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, e_s = 1.25
⇒ 1.25 × 8 = ΔQ
⇒ ΔQ = 10 units
Thus final output supplied, Q₂ = ΔQ + Q₁
Q₂ = 10 + 4 = 14 units