Question

Total revenue of a firm rises from Rs. 400 to Rs. 500 when the price of its product rises from Rs. 8 per unit to Rs. 10 per unit. Calculate the price elasticity of supply.

Answer 1

Given, $P=Rs.8;P_1=Rs.10;$
$\Delta P=P_1-P=Rs.10-Rs.8=Rs.2$
When price = Rs. 8, total revenue $(P\times Q)$= Rs. 400
$\therefore$ Quantity supplied (Q)= $\frac{400}{8}$ = 50 units
When price = Rs. 10,
total revenue $(P_1\times Q_1)=Rs.500$
$\therefore$ New quantity supplied $\left(Q_1\right)=\frac{500}{10}=50units$
Q = 50 units; $Q_1=50units$;
$\Delta =Q_1-Q=(50-50)$units = 0 unit
Price elasticity of supply $\left(E_s\right)=\frac{P}{Q}\times \frac{\Delta Q}{\Delta P}$
$=\frac{8}{50}\times \frac{0}{2}=0$