Total Revenue at a price of Rs. 4 per unit of a commodity is Rs. 480. Total Revenue increases by Rs.240 when its price rises by 25%. Calculate its Price Elasticity of Supply.
Given, P = Rs. 4
${{P}{1}}$ =4+25% of 4 = 4 + 1 = Rs.5
Initial Total Revenue (P x Q) = Rs.480
New Total Revenue (${{P}{1}}$ x
${{Q}{1}}$) = 480 + 240 = Rs.720
When, P = Rs. 4, Q = 480/ 4 = 120
When, ${{P}{1}}$ =Rs.5,
${{Q}{1}}$ = 720 / 5 = 144
P = Rs. 4, ${{P}{1}}$ = Rs. 5,
∆P = 5- 4 = Rs.1
Q = 120, ${{Q}{1}}$ =144,
∆Q = 144-120=24
Price Elasticity of Supply (${{E}{s}}$) =
∆Q / ∆P X P / Q
= 24/1 x 4/120 = 4/5 = 0.8
Price Elasticity of Supply = 0.8 (less than unit elastic)