Question

When the price of a good rises from Rs 20 per unit to Rs 30 per unit, the revenue of the firm producing this good rises from Rs 100 to Rs 300. Calculate the price elasticity of supply.

Answer 1

Given that

P₁ = 20

P₂ = 30

ΔP = 30 - 20 =10

Now

TR₁ = 100

TR₂ = 300

Q₁ = TR₁/P₁ = 100/20 = 5

Q₂ = TR₂/P₂ = 300/30 = 10

Thus

`DeltaQ=(10-5)=5`

`E_d((DeltaQ)/Qxx100)/((DeltaP)/Pxx100)=(5/5)/(10/20)1/(1/2)=2`