The market price of a good changes from Rs 5 to Rs 20. As a result, the quantity supplied by a firm increases by 15 units. The price elasticity of the firm’s supply curve is 0.5. Find the initial and final output levels of the firm.
Elasticity of supply ex = 0.5
Initial price, P1 = Rs 5
Final price, P2 =Rs 20
∆P = P2 – P1
= 20 – 5
∆P = 15
∆Q = 15
es =
0.5 =
0.5 =
Q1 =
Initial quantity = 10 units
Final quantity, Q2 = ∆Q + Q1
= 15 + 10
Therefore, Q2 = 25 units
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