At the market price of Rs 10, a firm supplies 200 units of a good. If the market price increases to Rs 30, and the price elasticity of the firm's supply is 2. Then at new price what quantity will be supplied by the firm?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → 1000
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Initial price (P₁) = Rs 10
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New price (P₂) = Rs 30
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Initial quantity supplied (Q₁) = 200 units
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Elasticity (PES) = 2
% change in price= [($P_2-P_1$)/$P_1$] * 100
= [(30-10)/10] * 100 = 200%
Price Elasticity of Supply (PES) = % change in quantity supplied / % change in price
2 =% change in quantity supplied /200
% change in quantity supplied = 400 %
Increase in quantity=400% of 200
= (400/100) * 200
= 8000
New quantity=200+800=1000