question_answer

A firm supplies 10 units of a good at a price of Rs. 5 per unit Price elasticity of supply is 1.25. What quantity will the firm supply at a price of Rs. 7 per unit?              

Answer:

As given in the question,

\[Q_{{}}^{s}=10,\,\,P=5\] and \[E_{{}}^{s}=1.25\]

At new price of Rs. 7 per unit

\[\Delta P=7-5=2\]

We know,

\[E_{{}}^{s}=\frac{\Delta Q}{\Delta P}\times \frac{P}{Q}\]

or,        \[1.25=\frac{\Delta Q}{2}\times \frac{5}{10}\]

or,        \[Q=1.25\times 4=5\]

Thus, the new quantity that the firm would supply at a price of Rs. 7 per unit is 15(5+10).