Answer to Question #166465 in Macroeconomics for Anchal Mishra

Question

10. A firm supplies 200 units of a good at a price of Rs 5 per unit. When

price changes it supplies 100 units less. Price Elasticity of Supply is 2.5.

Calculate price after change in quantity.

Answer 1

$Q=200$ $,P=200\times 5=Rs.1000$

$\Delta Q=100-200=-100$

let price after change in quantity$=x$

$\Delta P=x-1000$

$E_s=\Delta Q/ \Delta P\times P/Q$

$2.5=(-100)/(x-1000)\times 1000/200$

$2.5(x-1000)=-500$

$2.5x-1000=-500$

$2.5x=500$

$x=Rs200$

price per unit $=200/100=Rs 2$