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Currently, the profits are the same for stores both in the city and suburbs. But for the tax breaks in the city, the margin would still remain the same since other expenses are equal. To maintain the this edge in profit (while maintaining fixed expenses in other areas), the prices at both locations need be the same;
If the price in the city is further reduced, then there is a guaranty that the profit margin would remain higher in the city.
KUDOS me if you feel my contribution has helped you.
My answer would be D. Profit margin is nothing but ( Profit / revenue ) * 100. If the fish selling stores maintain the same price, then certainly profit margin increases. I am not convinced with the answer choice 'E'. Could anyone explain me why the answer is not 'D'.
D does not refer to the conclusion. It states facts about the past, while the conclusion refers to the future. Therefore, it would be interesting to know, if, in the future, prices in the city are lower than in the subs, which would tackle the conclusion directly.
But that's not really relevant. The conclusion is, that profit margins will be higher. To assess whether that's true, it would help to know if city stores reduce there prices to keep the profit margin the same (since they have lower costs). If they do, the conclusion is challenged in that profit margins won't be higher in the city.
Lets say cost in Eastville was 10$ and also in suburbs
Due to lower taxes cost became 9 $ for the city and remained 10$ for suburbs
Now profit =Selling Price-Cost Price
For city if Selling Price=20 then Profit would be 20-9=11 FOr suburbs Selling Price =20 then Profit would be 20-10=10
Hence Profit for city is higher even if the Selling Price is the same as suburbs
Now if I decrease the Selling Price in the city
Lets say is 19 then profit would be 19-9=10 so the profit will decrease
Am i missing a point here ??
There is nothing wrong with your interpretation. Let's see what question is trying to ask:
Question is asking which option will help us weigh the authenticity of author's conclusion.
Author's conclusion: Because the city's fish sellers will have to pay lower taxes than sub-urban fish sellers, doing business in the city will be more profitable.
E says: Let me check the validity of the conclusion:
Evaluation: Whether the city sellers will be forced/obliged to set a price much lower than the sub-urban sellers' price?
Ans: Yes!! Really, the conclusion is baseless then because I know I won't make profit if I set up my business in the city, for I will have to sell my fishes at a much lower price. Even though I will pay lower taxes, what's the use if I make less profit on sale.
Ans: No!! Wow, that's wonderful. I will surely set up my shop in the city because the conclusion was indeed true. Now, I can sell the fishes at the same price as sub-urban sellers do. Plus, I pay less taxes than them. Surely, I will make more profits.
You saw how the evaluation question proposed in the statement E helped us validate author's conclusion.
Because it's all about the profit margin, answer explicitly has to state the difference in either price (taking cost to do business is same) or cost (taking price is same) for those 2 locations.
(A) More fish wholesalers are located within the city than in the surrounding suburbs. No Price or Cost (B) Any people who currently own seafood stores in the suburbs surrounding Eastville will relocate their businesses nearer to the city. No Price or Cost (C) The wholesale price of fish is likely to fall in the future Still NO (D) Fish has always cost about the same at seafood stores throughout Eastville and its surrounding suburbs Still NO (E) Seafood stores within the city will in the future set prices that are lower than those at suburban seafood stores BINGO!!!