A company determines its yearly profits by deducting its operating exp

PRE-THINKING

1. The 4 elements of Profitability equation

a. Profit = (SP – CP) * No. of Units
i. Profit
ii. Selling Price per unit
iii. Cost Price per unit
iv. The number of units sold

2. If one element changes, say for example Profit increases in a certain period, it will also force at least one of the other elements to change. For example, Profit could increase because of
i. An increase in unit selling price, or
ii. A decrease in unit cost price, or
iii. An increase in the number of units sold in the period

3. In the given argument, we are told that operating expenses remained same. Thus (ii) could not have happened.

4. Since (iii) also did not take place, the only thing that must have changed is (i)

a. Inference: Company X raised the price/s of its product/s this year.

ANSWER CHOICE ELIMINATION

A. Consumers purchased more widgets and gadgets this year than they did last year.
(Per the passage, the consumers certainly did not purchase more widgets and gadgets this year from Company X than they did last year. They might have purchased more widgets and gadgets from other companies but that cannot be inferred from the passage. Out of scope
Incorrect Choice.)

B. Company X has raised the price of its widgets or of its gadgets since last year.
(This is in line with our pre-thought inference.
Correct Choice)

C. Company X's main competitors sold fewer widgets and gadgets this year than did Company X.
(No data is given in the passage to conclude anything about the sales of Company X’s main competitors. Out of scope.
Incorrect Choice)

D. Company X introduced a new type of widget this year.
(No discussion on the type of widget made or sold by Company X. Out of scope.
Incorrect Choice.)

E. Company X spent more on advertising this year than it did last year.
(If advertising costs are considered a part of the operating costs, then this choice is just the opposite of the data given in the passage. Other than that, nothing can be inferred about the advertising costs.
Incorrect Choice)

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.