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An exporter estimates with certainty that a 26%26\% higher price for his product will decrease the volume of sales in a foreign market by 30%30\%. After having to increase the price by 26%26\%, the revenue obtained from sales in that market turned out to be INR 44.1 Cr\text{INR } 44.1 \text{ Cr}. What would the revenue have been if the exporter had been allowed to sell at the old price?

Solution

Correct Option: 2

Let's define our variables:

  • Original price per unit =P= P
  • Original volume sold =V= V
  • Original revenue =P×V= P \times V

After the price increase:

  • New price per unit =P×1.26= P \times 1.26
  • New volume sold =V×0.70= V \times 0.70
  • New revenue =INR 44.1 Cr= \text{INR } 44.1 \text{ Cr}

Using the relationship: New Revenue == New Price ×\times New Volume

44.1=(P×1.26)×(V×0.70)44.1 = (P \times 1.26) \times (V \times 0.70)

44.1=P×V×1.26×0.7044.1 = P \times V \times 1.26 \times 0.70

44.1=P×V×0.88244.1 = P \times V \times 0.882


Since Original Revenue =P×V= P \times V:

44.1=Original Revenue×0.88244.1 = \text{Original Revenue} \times 0.882

Original Revenue=44.10.882\text{Original Revenue} = \dfrac{44.1}{0.882}

Original Revenue=50\text{Original Revenue} = 50


The revenue at the old price would have been INR 5050 Crores.

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