Question

A firm's revenue rises from Rs. 400 to Rs. 500 when the price of its products rises from Rs. 20 per unit to Rs. 25 per unit. Calculate the price elasticity of supply.

Answer 1

Given, P= Rs. 20; $P_1$= 25;
$\Delta =P_1-P$ = Rs. 25 - Rs. 20 = Rs. 5
When price = Rs. 20, total revenue $(P\times Q)$=Rs. 400
$\therefore$ Quantity supplied(Q) $=\frac{400}{20}=20units$
When price =25, total revenue $(P_1\times Q_1)$ =500
$\therefore$ New quantity supplied $\left(Q_1\right)=\frac{500}{25}=20units$
Q= 20 units; $Q_1=20units$
$\Delta Q=Q_1-Q=(20-20)units=0units$
Price elasticity of supply $\left(E_s\right)=\frac{P}{Q}\times \frac{\Delta Q}{\Delta P}=\frac{20}{20}\times \frac{0}{5}=0$
Price elasticity of supply =0 (zero).