Question

The market price of a good changes from Rs 5 to 20. As a result the quantity supplied by a firm

increases by 15 units. The price elasticity of supply is 0.5. Find initial and final output.​

Answer 1

Answer:

Initial Output = 17.5 units

Final Output = 32.5 units

Explanation:

Let the initial quantity be x then after price change quantity is x+15.

Price changes from ₹ 5 to ₹ 20.

Elasticity = 0.5

Elasticity of supply can be measured using the following formula

E = %∆ Q / %∆ P

Applying mid-point method we get

$e = \frac{(q2 - q1)(p2 + p1)}{(q2 + q1)(p2 - p1)}$

plug in the given values we get

$0.5 = \frac{(x + 15 - x)(20 + 5)}{(x + 15 + x)(20 - 5)}$

$0.5 = \frac{15 \times 25}{(2x + 15) \times 15}$

$0.5 \times (2x + 15) = 25$

$x + 7.5 = 25$

$x = 17.5$

Initial output = 17.5

Final Output = 32.5

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