When price of a good rises from Rs 8 per unit to Rs 10 per unit, producer supplies 40 units more. P.$e_s$ is 2. What is the quantity supplied before the price change?
Answer & explanation
Correct answer: option 3
The correct answer is Option 3: 80
Price elasticity of supply ($e_s$)= Percentage change in quantity supplied /Percentage change in price
= [(△Q/Q)*100]/[(P/△P)*100]
= [△Q/Q] * [P/△P]
P= 8
△P = 2
△Q = 40
Q =?
Putting these values,
Price elasticity of supply ($e_s$)=[△Q/Q] * [P/△P]
2 = (8/Q)* (40/2)
Q= 320/4= 80 Units