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?
Firm’s revenue when price is Rs 10 per unit =Rs 50
Quantity sold = Rs 50 / Rs 10 = 5 Units.
Firm’s revenue when price is Rs 15 per unit = Rs 150
Quantity sold = Rs 150 / Rs 15 = 10 units
P = 10 , ${{P}{1}}$ = 15, Q = 5 , Q1 = 10
∆P = ${{P}{1}}$ - P = 15-10 = 5
∆Q = Q1 - Q = 10-5 = 5
Accordingly, ${{E}{s}}$ = ∆Q / ∆P x P/Q = 5/5 x 10/5 = 2
${{E}{s}}$ = 2 which implies elastic supply.