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Company X receives most of its revenues from the sale of

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Senior Manager
Joined: 05 Apr 2007
Posts: 253
Company X receives most of its revenues from the sale of [#permalink]

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12 Jul 2009, 00:45
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67% (02:16) correct 33% (01:14) wrong based on 192 sessions

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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 it to the final consumer at its gas stations. Over the next quarter, the management of Company X expects that the market price of gasoline will rise by approximately 10 percent. Therefore, the management projects that the next quarter’s revenues from the sale of gasoline will also increase by approximately 10 percent.

The management's projection is based on which of the following assumptions?

A. Consumption of gasoline at the company’s gas stations will not drop in response to higher prices.

B. Company profits will not decline below their current level.

C. Higher gasoline prices will not reduce the company’s revenues from other business lines.

D. The costs of gasoline purchased by the company for subsequent sale at its gas stations will remain relatively constant.

E. The supply of gasoline is likely to decline over the next quarter.
[Reveal] Spoiler: OA

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Director
Joined: 27 Jun 2008
Posts: 542
WE 1: Investment Banking - 6yrs
Re: Company X receives most of its revenues from the sale of [#permalink]

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12 Jul 2009, 01:47
A

B - does not relate
C - out of scope
D - was confused with this choice, but picked A, it makes more sense.
E - against the conclusion
Director
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Name: Ronak Amin
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Re: Company X receives most of its revenues from the sale of [#permalink]

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12 Jul 2009, 03:44
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Yup A.

Notice that the conclusion only talks about 'revenues'. It doesn't talk about profitability.

Now, revenues can be INCREASED only if the demand is constant(if price has increased) OR demand has increased (if price has decreased AND demand is greater to offset the price decrease) OR demand has decreased (if price has increased AND price increase is greater to offset the decrease in demand).

We are not given any figures that give us the relationship between demand and price. Hence in this context only one thing is possible, i.e. demand should be constant (which is the assumption here)

Sorry to over-engineer
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Joined: 15 May 2009
Posts: 169
Re: Company X receives most of its revenues from the sale of [#permalink]

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12 Jul 2009, 11:26
trainspotting wrote:
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 it to the final consumer at its gas stations. Over the next quarter, the management of Company X expects that the market price of gasoline will rise by approximately 10 percent. Therefore, the management projects that the next quarter’s revenues from the sale of gasoline will also increase by approximately 10 percent.

The management's projection is based on which of the following assumptions?

A. Consumption of gasoline at the company’s gas stations will not drop in response to higher prices.
B. Company profits will not decline below their current level.
C. Higher gasoline prices will not reduce the company’s revenues from other business lines.
D. The costs of gasoline purchased by the company for subsequent sale at its gas stations will remain relatively constant.
E. The supply of gasoline is likely to decline over the next quarter.

I think this question is trying to trick some people in to mixing up the ideas of "revenue" & "profit". I think the best answer is (A). If less people buy gas due to price increases, then overall sales will decline, and revenue will decline (or at least not rise as projected).

(B) Negation of this argument does not undermine the claim. Profit may decline as a result of increased costs, but revenue could still rise as a result of market pricing increases.
(C) Out of scope; the original info restricts discussion of revenues to the sale of gas.
(D) I think this is the trick answer, people who mixes up "revenue" & "profit" will likely choose this one. Even if the price of whole sale supply increases & cuts into the profit margin of the company, revenues could still increase as a result of price increases.
(E) Wrong for the same reason as B.
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Joined: 26 May 2009
Posts: 305
Re: Company X receives most of its revenues from the sale of [#permalink]

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16 Jul 2009, 14:58
IMO A.

Senior Manager
Joined: 05 Apr 2007
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Re: Company X receives most of its revenues from the sale of [#permalink]

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16 Jul 2009, 20:24
A is the OA.....
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Re: Company X receives most of its revenues from the sale of [#permalink]

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18 Jul 2009, 10:07
Agree with A
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Manager
Joined: 27 Jun 2008
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Re: Company X receives most of its revenues from the sale of [#permalink]

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20 Jul 2009, 02:38
Agree with A, Chose D but a careful reading revealed that the premise is about the revenue and not the profit.
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Joined: 21 Jun 2009
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Re: Company X receives most of its revenues from the sale of [#permalink]

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21 Jul 2009, 07:55
ooohhh.. tricky...got me there. Thought I was really smart and chose D in 20 secs. Screwed! Lesson learnt. If its too easy to be true, then it is too easy to be true!
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Joined: 14 Nov 2008
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Re: Company X receives most of its revenues from the sale of [#permalink]

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30 Aug 2013, 07:00
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.
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Posts: 10155
Re: Company X receives most of its revenues from the sale of [#permalink]

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26 Sep 2015, 12:28
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Company X receives most of its revenues from the sale of [#permalink]

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14 Feb 2016, 15:53
trainspotting wrote:
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 it to the final consumer at its gas stations. Over the next quarter, the management of Company X expects that the market price of gasoline will rise by approximately 10 percent. Therefore, the management projects that the next quarter’s revenues from the sale of gasoline will also increase by approximately 10 percent.

The management's projection is based on which of the following assumptions?

A. Consumption of gasoline at the company’s gas stations will not drop in response to higher prices.

B. Company profits will not decline below their current level.

C. Higher gasoline prices will not reduce the company’s revenues from other business lines.

D. The costs of gasoline purchased by the company for subsequent sale at its gas stations will remain relatively constant.

E. The supply of gasoline is likely to decline over the next quarter.

yes..pretty confusing..was stuck between A and D. since we talk about REVENUE's, and not Profit, A is the best.
my initial ideas: Demand for gas will not decrease; B - other gas stations would not offer at a cheaper price.

if we negate A - we clearly see that the revenue will not increase, and thus the conclusion of the argument is destroyed....

Negate D - the costs will fluctuate - this will affect company's profitability but not its revenue.

A is the best.
Company X receives most of its revenues from the sale of   [#permalink] 14 Feb 2016, 15:53
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