to increase production by 20%? following are the options to pick.
a) 8% b) 20% c) 12.5% d) 45%
In this question i know that i m supposed to use this formula E= % change in Q_d/% change in P for supply but i am not getting the answer!
The answer is a) 8%
E = % change in quantity divided by % change in price
Plug in the numbers you are given:
2.5 = 20 / % change in price
Solve for the unknown:
% change in price = 20 / 2.5 = 8
So the price would have to change by 8%. This would be an increase as opposed to a decrease because of the positive relationship between price and quantity supplied.
March 11th, 2010 at 8:49 am
The answer is a) 8%
E = % change in quantity divided by % change in price
Plug in the numbers you are given:
2.5 = 20 / % change in price
Solve for the unknown:
% change in price = 20 / 2.5 = 8
So the price would have to change by 8%. This would be an increase as opposed to a decrease because of the positive relationship between price and quantity supplied.
References :