Price of a good changes from Rs 5 to Rs 20 and supplied quantity increases by 15. If price elasticity is 0.5, the final output level is .

10 units

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15 units

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20 units

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25 units

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Solution

The correct option is D 25 units
Given that $p_{0} = R s 5, p_{1} = R s 20, Δ q = 15, ϵ_{s} = 0.5 Δ p = p_{1} - p_{0} = R s 15$ $ϵ_{s} = \frac{Δ q}{Δ p} \times \frac{p_{0}}{q_{0}} ϵ_{s} = \frac{15}{15} \times \frac{5}{q_{0}} = 0.5 q_{0} = \frac{5}{0.5} = 10 q_{1} = q_{0} + 15 = 25$

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