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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.

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Solution

Given, P= Rs. 20; P1= 25;
Δ=P1P = Rs. 25 - Rs. 20 = Rs. 5
When price = Rs. 20, total revenue (P×Q)=Rs. 400
Quantity supplied(Q) =40020=20units
When price =25, total revenue (P1×Q1) =500
New quantity supplied (Q1)=50025=20units
Q= 20 units; Q1=20units
ΔQ=Q1Q=(2020)units=0units
Price elasticity of supply (Es)=PQ×ΔQΔP=2020×05=0
Price elasticity of supply =0 (zero).


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