The market price of 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.
Given Es = 0.5
Price | 5 | 20 |
Supply | ? | ? |
Change in quantity = 15
Change in price = 15
Proportionate change in Price = 15/5 = 3
Proportionate Change in Quantity Supplied = 0.5 X 3 = 1.5
Proportionate change in Quantity Supplied = 15/x = 1.5
x = 15 / 1.5 = 10
Supply at base price of Rs 5 = 10
Change in quantity = 15
Therefore, new supply at the price of 20 will be = 10 + 15 = 25
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