Question

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

Answer 1

Given, P= Rs. 20; $P_1=Rs.30$
$\Delta P=P_1-P$= Rs. 30 - Rs. 20 = Rs. 10
When price = Rs. 20, total revenue $(P\times Q)$ = Rs. 100
$\therefore$ Quantity supplied (Q) = $\frac{100}{20}$= 5 units
When price = Rs. 30
Total revenue $(P_1\times Q_1)$ = Rs. 300
$\therefore$ New quantity supplied $\left(Q_1\right)=\frac{300}{30}$ = 10 units
Q= 5 units; $Q_1$=10 units;
$\Delta Q=Q_1-Q=(10-5)$ units = 5 units
Price elasticity of supply
$E_s=\frac{P}{Q}\times \frac{\Delta Q}{\Delta P}=\frac{20}{5}\times \frac{5}{10}=2$
Price elasticity of supply = 2.