question_answer

A firm's revenue rises from Rs 400 to Rs 500 when the price of its product rises from Rs 20 per unit to Rs 25 per unit. Calculate the price elasticity of supply.

Answer:

Initial Total Revenue (\[T{{R}_{1}}\]) = Rs 400

Final Total Revenue (\[T{{R}_{2}}\]) = Rs 500

Initial Price (\[{{P}_{1}}\]) = Rs 20

Initial Price (\[{{P}_{2}}\]) = Rs 25

\[\Rightarrow \] Change in Price (AP) = Rs (\[25-20\]) = Rs 5

Initial Quantity Supplied (\[{{Q}_{2}}\]) = \[\frac{T{{R}_{1}}}{{{P}_{1}}}=\frac{400}{20}\]  = 20 units

Final Quantity Supplied (\[{{Q}_{2}}\]) = \[\frac{T{{R}_{2}}}{{{P}_{2}}}=\frac{500}{25}\] = 20 units

\[\Rightarrow \]Change in Price (\[\Delta \]Q) =Rs (\[2020\]) = Rs 0

\[{{E}_{s}}=\frac{\frac{(\Delta Q)}{Q}\times 100}{\frac{\Delta P}{P}\times 100}=\frac{\frac{0}{20}\times 100}{\frac{5}{20}\times 100}=0\]

Hence, elasticity of supply is zero.