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,

When, P = Rs. 4, Q = 480/ 4 = 120

When, ${{P}

${{Q}

*{1}}$ = 720 / 5 = 144*

P = Rs. 4, ${{P}{1}}$ = Rs. 5,

P = Rs. 4, ${{P}

∆P = 5- 4 = Rs.1

Q = 120, ${{Q}

*{1}}$ =144,*

∆Q = 144-120=24

Price Elasticity of Supply (${{E}{s}}$) =

∆Q = 144-120=24

Price Elasticity of Supply (${{E}

∆Q / ∆P X P / Q

= 24/1 x 4/120 = 4/5 = 0.8

Price Elasticity of Supply = 0.8 (less than unit elastic)