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29 October, 16:14

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.

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  1. 29 October, 16:23
    0
    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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