Answer to Question #194013 in Management for Prachi shiledar

Question

Define elasticity of supply and find the price from the given statement:

If Es of a good is 2 and a firm supplies 200 units at price of Rs 8 per unit, then at what 

price will the firm supply 250 units.

Answer 1

Generally, elasticity is defined as an evaluation of how the supply or demand of a product or service responds to changes in price. Supply elasticity thereby focuses on the behavior of supply once different prices are enacted. It is calculated by dividing the percentage change in quantity by that of price.

Elasticity=% Change in quantity/% Change in price

In this case, 2=25%/Z

2z=25

z=25/2

z=12.5%

price=12.5=100 x Y/8

12.5=100Y/8

100=100Y

Y= change in price= 1Rs

New Price is 9Rs.