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# Inference Revision: On Monday, Daisy’s Lemonade Stand sold

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MBA Section Director
Joined: 19 Mar 2012
Posts: 5121
Location: India
GMAT 1: 760 Q50 V42
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WE: Marketing (Non-Profit and Government)

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14 Feb 2015, 02:54
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15
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Difficulty:

65% (hard)

Question Stats:

57% (01:14) correct 43% (01:18) wrong based on 701 sessions

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On Monday, Daisy’s Lemonade Stand sold lemonade at 20 cents per cup. The Lemon Shack sold lemonade at 30 cents per cup. At the end of the day, Daisy’s Lemonade Stand and the Lemon Shack reported identical revenues and identical profits. The statements above best support which of the following assertions?

A. On Monday, Daisy’s Lemonade Stand sold fewer cups of lemonade than did the Lemon Shack.

B. The Lemon Shack sells higher quality lemonade than does Daisy’s Lemonade Stand.

C. On Monday, Daisy’s Lemonade Stand and the Lemon Shack incurred identical costs to run their businesses.

E. The Lemon Shack would not increase its revenues by lowering its prices.

Spoiler: :: OE
stores. The question asks us to make an assertion, or conclusion, based on the
(A) This conclusion is incorrect. If Daisy’s sells its lemonade at a lower price than
the Lemon Shack, and if the stores reported identical revenues for the day, then
Daisy’s sold more cups of lemonade than the Lemon Shack, not less.
(B) We know nothing about the quality of lemonade at either store.
(C) CORRECT. If the stores reported identical revenues and identical profits, the
profit equation Profit = Revenue – Cost tells us that their costs must have been
identical as well.
(E) We know nothing about the market conditions surrounding either store.
Therefore, we cannot make any conclusions about what might happen if the
Lemon Shack were to lower its prices. It is very possible that the Lemon Shack
could in fact sell many more cups per day at lower prices, and it’s possible this

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17 Apr 2015, 05:43
6
Naina1 wrote:
Can anyone explain why not D??
If revenues are equal and price of lemonade is less at Daisy’s then this implies quantity sold must be more at Daisy's.

Hi Naina1
This choice is a classic GMAT trap. We don't know anything about consumer's tastes. Though this answer choice looks tempting. But imagine the following situation. Both Daisy and Lemon Shack earned 1.2 dollar revenue (i.e Daisy sold 6 units of lemonade and Lemon Shack sold 4). But what if all 6 units of Daisy lemonade were bought by one person and all 4 units of Lemon Shack were bought by four different people. Does it tell us that people prefer Daisy lemonade to that of Lemon Shack's? No. That is why D is incorrect
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Manager
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14 Feb 2015, 18:57
3
Two mathematical properties to know:
1. Total Sales Revenue = Total Quantity Sold * Price per Unit
2. Profit = Revenue - Expenses/Costs

[B], [D], and [E] are unsupported by the passage as quality, consumer preference, and price changes are not mentioned.

[A] is a reverse-trap. Daisy's Stand charged less than the Lemon Shack but they both had the same level of revenue. Daisy's Stand would have to have sold more cups.

[C] is correct. If both businesses incurred the same revenues, then the only way for them to reach the same level of profits is to incur the same level of costs.
MBA Section Director
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Posts: 5121
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GMAT 1: 760 Q50 V42
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WE: Marketing (Non-Profit and Government)

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15 Feb 2015, 08:20
OA and OE posted! Kudos awarded to contributors.
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16 Feb 2015, 00:26
Option C is the only correct option as it tells as that both the centres had to have same production cost as both have same revenue and same profit
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06 Mar 2015, 23:51
Can anyone explain why not D??
If revenues are equal and price of lemonade is less at Daisy’s then this implies quantity sold must be more at Daisy's.
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20 Mar 2016, 19:09
souvik101990 wrote:
On Monday, Daisy’s Lemonade Stand sold lemonade at 20 cents per cup. The Lemon Shack sold lemonade at 30 cents per cup. At the end of the day, Daisy’s Lemonade Stand and the Lemon Shack reported identical revenues and identical profits. The statements above best support which of the following assertions?

A. On Monday, Daisy’s Lemonade Stand sold fewer cups of lemonade than did the Lemon Shack.

B. The Lemon Shack sells higher quality lemonade than does Daisy’s Lemonade Stand.

C. On Monday, Daisy’s Lemonade Stand and the Lemon Shack incurred identical costs to run their businesses.

E. The Lemon Shack would not increase its revenues by lowering its prices.

I fell into the trap..
A - doesn't make sense.otherwise the revenue would not be the same.
B - quality of lemonade is out of scope
C - if R same, and P is the same, and we know that Profit=Revenue - costs, it must be that both had the same costs. and first one had lower the costs/cup than the second. so C works.
D - preference of the consumers is out of scope. the consumers might prefer Lemon shack, but because it is more expensive, buy Daisy's lemonade. so no.
E - might be true...so no.
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24 May 2017, 01:10
Profit = Revenue - Cost
If revenue and profit are identical, cost must be identical.
Option C correctly assert this, but i have a doubt. Isn't cost to run business different from the overall cost?
I have mislead due to the term 'run', which seems like 'operating cost'.
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06 Feb 2018, 00:54
Mahmud6 wrote:
Profit = Revenue - Cost
If revenue and profit are identical, cost must be identical.
Option C correctly assert this, but i have a doubt. Isn't cost to run business different from the overall cost?
I have mislead due to the term 'run', which seems like 'operating cost'.

I misread the "cost" mentioned here too. At first I thought it's the cost per cup (which is obviously not when I read it carefully) , but it seems here that the "cost to run their businesses" including all costs (production/marketing/operations...) i guess.
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