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Question
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?
Solution
As given in the question,
Qs = 10, P = 5 and Es = 1.25
At new price of Rs 7 per unit
ΔP = 7 - 5 = 2
We know,
`E_s=(ΔQ)/(ΔP)xxP/Q`
or, `1.25=(ΔQ)/2xx5/10`
or, ΔQ = 1.25 x 4 = 5
Thus, the new quantity that the firm would supply at a price of Rs 7 per unit is 15 (5+10).
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