question_answer

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:

Price,    P = Rs. 20,

TR = Rs. 100

\[\therefore \]      Quantity demanded, \[Q=\frac{TR}{P}=\frac{100}{20}=5\]

Price,    \[{{P}_{1}}=\]Rs 30,

TR = Rs 300

\[\therefore \]      Quantity demanded, \[{{Q}_{1}}=\frac{TR}{P}=\frac{300}{30}10\]

\[\Delta P={{P}_{1}}-P=\,\,Rs\,\,30\,\,-\,\,Rs\,\,20\,\,=\,\,Rs\,\,10\]

or         \[\Delta Q={{Q}_{1}}-Q=\,\,10\,\,-\,\,5\,\,=\,\,5\,\,\text{units}\]

\[\therefore \]      \[{{E}_{s}}=\frac{\Delta Q}{\Delta P}\,\,\times \,\,\frac{P}{Q}=\frac{5}{10}\,\,\times \,\,\frac{20}{5}=2\]