gmatdriller wrote:A firm increases its revenues by 10% between 2008 and 2009. The firm's costs increase
by 8% during this same time. What is the firm's percent increase in profits over this
period, if profits are defined as revenues minus costs?
(1) The firm's initial profit is $200,000.
(2) The firm's initial revenues are 1.5 times its initial costs.
Considering that the use of 2 or 3 unknowns under tight time constraints can lead to
errors, what is the most efficient way of solving the above question?
SOURCE: GROCKIT.COM
OA B
An alternate approach is to plug in values.
Statement 1: The firm's initial profit is $200,000
If the revenues in 1998 = 300,000 and the costs in 1998 = 100,000, then the profit in 1999 = 330,000 - 108,000 = 222,000.
If the revenues in 1998 = 400,000 and the costs in 1998 = 200,000, then the profit in 1999 = 440,000 - 216,000 = 224,000.
Since the change in profit can be different values, INSUFFICIENT.
Statement 2: The firm's initial revenues are 1.5 times its initial costs.
Let the revenues in 1998 = 300 and the costs in 1998 = 200.
Profit in 1998 = 300 - 200 = 100.
Profit in 1999 = 330 - 216 = 114.
Percent increase = 14%.
Let the revenues in 1998 = 600 and the costs in 1998 = 400.
Profit in 1998 = 600 - 400 = 200.
Profit in 1999 = 660 - 432 = 228.
Percent increase = (228-200)/200 * 100 = 14%.
When we increase the initial values by a factor, all of the subsequent values increase by the SAME factor.
Thus, the percent increase in profit will be the same in every case: 14%.
SUFFICIENT.
The correct answer is
B.
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