1. A. Define elasticity of supply and find the price from the given statement:
If ES of a good 2and a firm supplies 200 units at price of Rs 8 per unit, then at what price will the firm supply 250 units.
B. Calculate the elasticity of supply if a 15% increase in the price of soya bean oil increases its supply from 300 to 345 units.
A. Price elasticity of supply measures the responsiveness to the supply of a good or service after a change in its market price. Elastic means the product is considered sensitive to price changes. Inelastic means the product is not sensitive to price movements.
"Ed = \\frac{250 - 200} {P2 - 8} \u00d7\\frac{P2 + 8} {250+200} = 2,"
18P2 - 144 = P2 + 8,
17P2 = 152,
P2 = 8.94.
B. The increases in supply is 345/300 - 1 = 0.15 or 15% and is the same as an increase in price.
So, Ed = 1.
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