A firm earns a revenue of Rs 50 when the market price of a good is Rs 10. The market price increases to Rs 15 and the firm now earns a revenue of Rs 150. What is the price elasticity of the firm’s supply curve?
At price P1 = Rs 10
TR1 = P1 × Q1 = 50
Total revenue,
=
=
= Q1 = 5 units
At price, P2 = Rs 15
Total revenue, TR2 = P2 × Q2 = 150
= Q2 =
= Q2 =
= Q2 = 10 units
es =
Elasticity of supply,
∆Q = Q2 – Q1 = 10 – 5 =5
P = P1 – P2 = 15 – 10 = 5
es =
es = 2
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