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GMAT Profit and Loss Basics: cost price is price to the seller; marked price is listed price; discount is a % of marked price; profit = selling price − cost price; profit % = profit ÷ cost price; profit margin = profit ÷ selling price.
Profit and loss questions during GMAT prep often create confusion because of the subtle differences between terms like cost price, marked price, selling price, profit percentage, and profit margin. At first glance, they may appear similar, but the distinction between them is crucial. The cost price is the actual cost incurred by the seller, while the marked price is the price displayed on the product. However, the selling price is what the buyer ultimately pays. Mark-up percentage is calculated on the cost price, while discounts are applied to the marked price, and profit is always based on the difference between selling price and cost price. A common mistake is to confuse profit percentage with profit margin. Profit percentage uses cost price as the base, while margin uses selling price. Getting this distinction right is essential for mastering GMAT preparation and for building accuracy through GMAT mocks.
The value chain of pricing involves three terms: cost price, marked price, and selling price. The cost price is what the seller pays to procure the item. The marked price is the price listed on the product. The selling price is the actual price at which the product is sold to the customer.
Mark-up is calculated as [(marked price – cost price) ÷ cost price] × 100.
For example, if the cost price is $100 and the marked price is $150, the mark-up is 50 percent.
Profit, however, is based on selling price: Profit = Selling Price – Cost Price.
Profit percentage is (Profit ÷ Cost Price) × 100, while profit margin is (Profit ÷ Selling Price) × 100.
For example, if cost price is $100 and selling price is $200, the profit percentage is 100 percent, but the margin is only 50 percent.
Question: A shopkeeper marks up by 100%, and gives two successive discounts of 10% and 20%. What is his percentage profit?
Let the cost price be 100.
Mark up by 100% → Marked Price = 200.
Apply 10% discount → 200 × 0.90 = 180.
Apply 20% discount → 180 × 0.80 = 144.
Profit = 144 − 100 = 44.
Percentage profit = 44 ÷ 100 × 100 = 44%.
The difference between profit percentage and margin often decides whether you solve a question correctly under exam pressure. By learning to keep the base in mind, you can quickly eliminate errors. Regularly practicing such examples helps you strengthen this clarity and avoid common traps in calculation.
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