A firm earns revenue of Rs 60 when the market price of a good is Rs 10. The market price increases to Rs 15 and the firm now earns revenue of Rs 180. What is the price elasticity of the firm's supply curve?
Answer & explanation
Correct answer: option 4
The correct answer is Option 4: 2
Revenue Rs. 60 and price Rs. 10 means quantity is 6 units.
And revenue Rs. 180 and price Rs 15 means quantity is 12 units.
So at price 10, Q is 6 units and at price of Rs. 15, Q is 12 units.
Applying formula for elasticity = (Change in quantity/Change in price)*( Initial price/Initial quantity),
we get elasticity as 2.