PM Pre March 2023 last question of sec C

Initially, for every $100 selling price the gross profit will be 40% i.e. $40.

However they reduce the selling price by 5% which is $5. So the selling price falls to $95 and since the purchase cost is staying the same then profit will fall by $5 also, so down to $35,
So the gross profit will be 35/95 times the revenue.

Similarly, in the following year the selling price is reduced again by 5%, which is a fall of 5% x $95 = $4.75. So the selling price falls to 95 – 4.75 = $90.25, and the profit falls to 35 – 4.75 = $30.25.
So now the gross profit is 30.25/90.25 times the revenue.

You are welcome 🙂