Company X receives most of its revenues from the sale of

OFFICIAL EXPLANATION

The management concludes that a 10% increase in gasoline prices will result in a 10% increase in revenues from the sale of gasoline. In order to reach this conclusion, we need to assume that the amount of gasoline sold will not drop despite the higher prices.

(A) CORRECT. This assumption is critical to justify the projection that a 10% increase in gas prices will result in a 10% increase in revenues from gasoline sales. Note that if this assumption does not hold, the management’s projection will collapse. For example, if consumers switch to public transportation or simply start to drive less in response to the higher prices, the revenues of the company will not increase by the same amount as the increase in the sales price. In fact, if the decline in gasoline consumption is substantial (e.g. 20%) the company will experience lower rather than higher revenues.

(B) The issue of profits is irrelevant to the management’s conclusion about revenues from the sale of gasoline.

(C) Since the management’s projection concerns only the sales of gasoline, revenues of other business lines are beyond the scope of the argument.

(D) Since the management’s conclusion concentrates on revenues, the issue of costs is beyond the scope of the argument.

(E) It is not necessary to assume that the supply of gasoline will decline, since the price increase can be driven by a variety of other factors, such as production costs, market environment, and others.

A is the correct choice here.

According to the argument
Premise: managers of Company X expect that the market price of gasoline will rise by approximately 10 percent

Conclusion:next quarter’s revenues from the sale of gasoline will also increase by approximately 10 percent

Revenues = Price per gallon * Total gallons sold.

If the total revenue has to increase by same percentage as the price per gallon , the managers must assume that Total gallons sold stay the same as before. Hence A is the obvious answer.

Crick

Company X receives most of its revenues from the sale of gasoline through a network of gas stations that it owns across the country. The company purchases ready-for-sale gasoline from several oil refineries at wholesale prices and sells the gasoline to the final consumer at its gas stations. Over the next quarter, the managers of Company X expect that the market price of gasoline will rise by approximately 10 percent. Therefore, the managers project that the next quarter’s revenues from the sale of gasoline will also increase by approximately 10 percent.

The managers’ projection is based on which of the following assumptions?

Background Argument says that managers have predicted that gasoline retail price will increase in next year and have predicted that their revenue will also increase by 10%
Prethinking: so if i prethink it means that i increase the price by 10% and my revenue by 10% then my consumption is always constant or consumption might increase

A)Consumption of gasoline at the company’s gas stations will not drop in response to higher prices.Correct answer
B)Company profits will not decline below their current level.
profits will not decline below their current level.but conclusion say that revenue will increase by 10%...but i dont know anything about their profit.even if i negate B,then also my revenue could be>10%
C)Higher gasoline prices will not reduce the company’s revenues from other business lines.
Considering other business lines is out of scope
D)The costs of gasoline purchased by the company for subsequent sale at its gas stations will remain relatively constant.
it is out of scope.I am not concerned about how much i am buying it for but I am concerned how much revenue I am generating from the quantity that X wants to sell.
E)The supply of gasoline is likely to decline over the next quarter.
Out Of scope

Methodology:

A. Consumption of gasoline at the company’s gas stations will not drop in response to higher prices. A very good option. Keep on hold.
B. Company profits will not decline below their current level. Current profilts declining is not in scope.
C. Higher gasoline prices will not reduce the company’s revenues from other business lines. Other business lines are irrelevant.
D. The costs of gasoline purchased by the company for subsequent sale at its gas stations will remain relatively constant. Worth a revisit because it mentions costs.
E. The supply of gasoline is likely to decline over the next quarter. So? Does it also mean that there won't be a supply recovery in Q2? Unsaid. This is also not an assumption.

Between Options A and D
Option D mentions cost of purchase. The stimulus however mentions revenues from the sale of gasoline and not company revenue (cost + profit). Thus, the revenue here specifically implies income from sale of gasoline. MGMAT has previously used revenue in question-specific terms too. Refer this question: https://gmatclub.com/forum/box-office-r ... 20released.

I feel if this question were to appear in GMAT, income would be specified instead of the generalised term 'revenue'. Say income is used, for an increase of 10% in both income AND selling price, all other conditions have to be constant. One condition is the consumption of gasoline. That's option A.


---------------------------------------------------------------------------------------------------------------------------------------
“There are lies, damned lies, and statistics.”

Saurav

Because of higher prices even if the sale go down. The higher prices can still give a 10% boost to overall revenue. So not sure why A is correct

Hello from the GMAT Club VerbalBot!

Thanks to another GMAT Club member, I have just discovered this valuable topic, yet it had no discussion for over a year. I am now bumping it up - doing my job. I think you may find it valuable (esp those replies with Kudos).

Want to see all other topics I dig out? Follow me (click follow button on profile). You will receive a summary of all topics I bump in your profile area as well as via email.