MGMAT CAT3 CR

[tkulkarn]

There was a CR question regarding lemonade sales in CAT3.

two diff lemonade stands with per cup price = 20 and 30 cents respectively reported identical profits and revenues.
the correct answer explanation is unclear to me. Can the instructors shed light on this one?
The price per cup is certainly different; if the cost to make the cup is the same, the profit will be different.

[RonPurewal]

There was a CR question regarding lemonade sales in CAT3.

two diff lemonade stands with per cup price = 20 and 30 cents respectively reported identical profits and revenues.
the correct answer explanation is unclear to me. Can the instructors shed light on this one?
The price per cup is certainly different; if the cost to make the cup is the same, the profit will be different.

* forum rules: you must post the ENTIRE QUESTION, along with ALL ANSWER CHOICES.
you can copy and paste problems from our exams, so this shouldn't take a great deal of effort.

* this problem is in the wrong folder - it belongs in the MATH folder (this is the verbal folder).

thanks.

[cmtorres]

The full question is as follows:

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.

D In general, lemonade consumers prefer the lemonade at Daisy’s Lemonade Stand to the Lemonade at the Lemon Shack.

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

I also got this one wrong and answered D.
But D is incorrect because it is not taking into consideration other reasons that explain why the price at Daisy's is less than the price at The Lemon Shack. For example, it may be that the Lemon Shack has an ideal, central location and it may be inside an attractive, new building with air conditioning and modern decor whereas Daisy's is located in the middle of nowhere in a less desirable building with fewer amenities. Therefore we can't assume that the difference in price is explained by the preferences of the consumers. Furthermore, if the consumers did in fact prefer the lemonade at Daisy's, then they would be likely to be willing to pay MORE for their lemonade instead of less than the lemonade at The Lemon Shack.
The correct answer is C because, as explained:
Total revenue - total cost = total profit.
Therefore cost = revenue - profit
And since both have identical revenues and profits, then they must also have incurred identical costs for the day.

[tim]

Thanks, cmtorres..