Question

A producer received rupees 10000 when the price of a commodity was rupees 100 per unit. The receipts increased to rupees 15000 when price increased by rupees 20.Calculate the elasticity of supply?

Answer 1

Price Elasticity of Supply = 1.25

Explanation:

Price Quantity Total Revenue ( P x Q)

100 10000/100 = 100 10000

120 15000/120 = 125 15000

Price Elasticity of supply is change in quantity supplied, due to change in price. Formula : (dQ / dP) x (P / Q)

(125 - 100) / (120 - 100) x (100/100)

= 25/20 = 1.25