A firm’s elasticity of supply is 0.5. At the original market price of $10, the quantity supplied by the firm is 500 units. The market price then rises to $11.

What will be the firm’s revenue after the price rise in price by calculating? Explain your answer and show your calculation.

Respuesta :

Answer:

The firm's revenue after the price rise will be US$ 5,775

Explanation:

1. For calculating the quantity supplied after the price rise, we use the following formula:

Price elasticity of demand (PED) =

Percentage change in quantity demanded/Percentage change in price

2. Let's replace the formula with the data given:

0.5 = Percentage change in quantity demanded/10

Percentage change in quantity demanded = 0.5 * 10

Percentage change in quantity demanded = 5%

3. Let's find out the new quantity demanded after the price rise:

Quantity after the price rise = (Quantity before the price rise * Percentage change in quantity demanded) + Quantity before the price rise

Quantity after the price rise = (500 * 5%) + 500

Quantity after the price rise = 25 + 500

Quantity after the price rise = 525

4. For calculating the new revenue, we take the new price and the quantity after the price rise:

New revenue = New price * Quantity after the price rise

New revenue = 11 * 525

New revenue = US$ 5,775

After the price rise from US$ 10 to US$ 11, the company will supply 525 units that will generate US$ 5,775 of revenue.​  

 

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