Question

A firm earns a revenue of Rs 50 when the market price of a good is Rs 10. The market price increase to Rs 15 and the firm now earns a revenue of Rs 150. What is the price elasticity of the firm’s supply curve?

Answer 1

At Price, P₁ = Rs 10

Total Revenue, TR₁ = P₁ × Q₁ = 50

`rArr("TR"_1)/P_1=Q_1`

`rArr50/10=Q_1`

⇒ Q₁ = 5 units

At Price, P₂ = Rs 15

Total Revenue, TR₂ = P₂ × Q₂ = 150

`rArrQ_2=("TR"_2)/P_2`

`rArrQ_2=150/15`

⇒ Q₂ = 10 units

Elasticity of supply, `e_s=(DeltaQ)/(DeltaP)xxP/Q`

ΔQ = Q₂ − Q₁ = 10 − 5 = 5

P = P₁ − P₂ = 15 − 10 = 5

`e_s=5/5xx10/5`

e_s= 2