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?

Given Es = 1.25


Price



10



30



Supply



4



?




Change in price = 20


Proportionate change in Price = 20/10 = 2




Proportionate Change in Quantity Supplied = 1.25 X 2 = 2.5


Proportionate change in Quantity Supplied = x/4 = 2.5


x = 2.5 X 4 = 10


Change in quantity = 10


Therefore, new supply at the price of 30 will be = 4 + 10 = 14


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