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Question
Price elasticity of supply of a good is 2. A producer supplies 100 units of a good at a price of Rs 20 per unit. At what price will he supply 80 units?
Solution
Given
Es=2
Actual Quantity (Q0)=100
Actual Price (P0)= Rs 20
New in Quantity (Q1)= 80
Change in Quantity Supplied (ΔQ)=Q1-Q0=80-100 = - 20
New in Price (P1) = ??
`E_s=(+)(DeltaQ)/(DeltaP)xxP_0/(Q_0)`
`2=(+)(-20)/(DeltaP)xx20/100`
ΔP=-2
We know that
ΔP=P1-P0
So -2=P1-20
∴P1=18
Hence, new price is Rs 18. The seller will supply 80 units at Rs 18 per unit
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