Question

When the price of cloth were reduced by 25% the quantity of cloth sold increased by 20%. What was the effect on gross receipt of the shop?

Answer 1

Initial Volume sold = x units
Original Selling Price = y dollars/unit
Total Revenue = Volume * Selling Price = x * y = xy

New Volume Sold = (x * 1.20) units = 1.20x units
New Selling Price = (y * 0.75) dollars/unit = 0.75y
Total Revenue = Volume * Selling Price = 1.20x * 0.75y = 0.9xy

Difference between revenues = Original Revenue - New Revenue
= xy - 0.9xy
= 0.1 xy

So the gross receipt of the shop reduced by 0.1xy or 10%