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A foreign country reduces its import duty on an Indian exporter's product from 30% to 10%. The exporter estimates that the reduction in import duties - which he will pass on fully by reducing prices -- will increase the volume of sales by 50%. The revenue obtained in that market turned out to be Rs 165Cr. What would the revenue have been if the exporter continued selling at the old price?

Solution

✅ Correct Option: 1

Let the base price of the product (before any duty) be 100100 and the original volume of sales be VV units.

Old selling price =100+30%= 100 + 30\% of 100=130100 = 130

New selling price =100+10%= 100 + 10\% of 100=110100 = 110


Since the price dropped, sales volume increased by 50%50\%:

New Volume =1.5V= 1.5V

New Revenue =165= 165 Cr

110×1.5V=165110 \times 1.5V = 165

165V=165165V = 165

V=1V = 1


If the exporter had continued selling at the old price, there would be no price drop and hence no increase in volume. Volume stays at V=1V = 1.

Old Revenue =130×1= 130 \times 1

=130= 130 Cr

The revenue would have been Rs 130130 Cr.

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