selim wrote:
A trader normally makes a profit of 40% on items he sells. If he reduces the price by 10%, his sales increase by 40%. Let x be the total profit when he doesn't reduce the price and y be the total profit when he reduces the price. What is the ratio of x to y ?
A) 1.28
B) 7.8
C) 1.11
D) 0.91
E) 0.25
I am assuming that we are talking about the 40% increase in sales of volume, not sales revenue
Let's say normally he sells 100 items of $10 each on which he makes a profit of 4% i.e. a profit of 100*4 = $400 = x
When he gives a discount of 10%, his effective profit is
40 - 10 + (40)*(-10)/100 = 26% which is $2.6 in case of $10 CP of each item.
But he sells 140 items.
So his profit = 140*2.6 = 364 = y
x/y = 1.099 which is closest to 1.11 but this option is certainly misleading.
Had (C) been 1.1, it would have been fine (rounded up) but I am not happy with 1.11.
It would have been far better had the question asked for y/x to get 0.91 as the answer.
Besides, the calculations involved are not GMAT-like. What is the source of this question?
Edited. My apologies for the mistake. May i know why this question is not GMAT type ?
Source : This question is taken from a practice sheet of GMAT quant.