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?
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When price (P)=Rs.10; total revenue (P×Q)=Rs.50
∴Quantity supplied Q=
50/10
=5units
When price (P1)
=Rs.15; total revenue (P1 xq1
=Rs.150
New quantity supplied (Q1)
150/15
=10units
P=Rs.10;
p1=Rs.15;
ΔP=P1-P
=Rs.15−Rs.10=Rs.5
Q=5units;
Q1=10units;
ΔQ=QQ
−Q=(10−5)=5units
Price elasticity of supply
Es=P/Q
×
ΔP
ΔQ
=10/5x5/5
=2
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