GMAT profit question solved: tiered costs and the averaging trap

The question

The fast answer

The correct answer is C, $3,100. Gross profit is total revenue minus total cost. Revenue is 500 trucks sold at $10.00 each, which is $5,000. Total cost is the first 100 trucks at $5.00 ($500) plus the remaining 400 trucks at $3.50 ($1,400), which is $1,900. Profit is $5,000 minus $1,900, or $3,100. The rest of this guide explains why that setup is the only safe one and how to avoid the traps the other four choices are built to catch.

Step by step

Step 1: Identify what the question is actually asking

The question asks for gross profit, not revenue and not cost. On the GMAT, the single most common reason a confident test-taker misses a problem like this is answering a different question than the one on screen. Before touching the numbers, write the target relationship down:

Everything else is just filling in those two numbers carefully.

Step 2: Compute total revenue

Revenue is price per unit times the number of units sold. All 500 trucks were sold at $10.00 each:

Notice the question gives both "produced" and "sold." Here they are the same number (500), so it does not bite. But the GMAT often makes those two quantities differ on purpose. Always read which number drives revenue (units sold) and which drives cost (units produced).

Step 3: Compute total cost using the two tiers

This is the heart of the problem. The cost is tiered: the first 100 trucks cost more per unit than the trucks after them. You must price each tier on its own and then add. Of the 500 trucks produced:

• First tier: 100 trucks × $5.00 = $500.
• Second tier: the "additional" trucks. Total minus the first 100 is 500 − 100 = 400 trucks, at $3.50 each = $1,400.

The check that protects you: the tier quantities must add back to the total. 100 + 400 = 500. If your tiers do not sum to the total produced, you have miscounted.

Step 4: Subtract to get gross profit

That is answer C. Clean, and arrived at without a calculator, which matters because GMAT Focus Quant has no calculator.

The GMAT theory behind the problem

Word problems like this one are not testing whether you know a profit formula. They test whether you can model a small business situation precisely and resist a tempting shortcut. Three concepts are in play.

Revenue is units sold times price

Revenue is the money coming in. On the GMAT it is almost always quantity sold × selling price. Watch for problems that quietly tell you some units were not sold, returned, or defective. The number you multiply by price is the number that left the building, not the number that was made.

Variable cost and the meaning of "tiered" or "marginal" cost

Cost here is purely variable: it scales with how many trucks you make, and there is no fixed cost (rent, machinery) mentioned. But the variable rate is not constant. The first 100 units carry a higher per-unit cost, and every unit after the 100th carries a lower one. That is a tiered cost structure, sometimes called marginal cost because the cost of the next unit changes once you cross the threshold. Tiered pricing shows up constantly on the GMAT, in shipping brackets, tax brackets, phone-plan overages, and bulk discounts. The mechanic is always the same: split the quantity at the threshold, price each piece at its own rate, and add.

Gross profit versus revenue versus margin

Gross profit is revenue minus the cost of producing the goods. It is not the same as revenue (which ignores cost) and not the same as margin (which is profit expressed as a percentage). The GMAT loves to offer revenue as a wrong answer to anyone who stopped one step early. Knowing exactly which quantity is requested is half the battle.

Why "first 100" versus "additional 400" is the whole game

The phrase "for the first 100 trucks and $3.50 for each additional truck" is doing all the work. It defines two tiers and one threshold (100 units). The single most important move is translating "additional" into a number: total produced minus the first tier, or 500 − 100 = 400. Students who skip that subtraction and assume the second tier is also 500 trucks, or who forget that the first 100 are excluded from the $3.50 rate, walk straight into a trap. The GMAT writes the sentence this way precisely because careless reading produces a number that matches one of the wrong choices.

Answer-choice trap analysis

Every wrong answer here is engineered from a specific, predictable error. Recognizing the pattern is how strong test-takers self-check.

Notice that B and D are the "averaging" traps from opposite directions: B charges every unit the expensive rate, D charges every unit the cheap rate. The correct answer C sits between them, which is exactly what a tiered structure should produce. If your answer is B or D, you almost certainly collapsed two tiers into one rate.

A reusable GMAT setup for revenue–cost–profit problems

Use the same four-line scaffold every time and these problems stop being tricky:

1. Name the target. Profit? Revenue? Cost? Margin? Write the exact word from the question.
2. Revenue column. Units sold × price. Confirm "sold" versus "produced."
3. Cost column. List every tier as quantity × rate, one line each. Verify the quantities sum to the total.
4. Combine. Apply the relationship from line 1 (usually revenue − cost) and match to a choice.

Keeping revenue and cost in two visually separate columns is the discipline that prevents the most expensive GMAT error of all: subtracting the wrong pair of numbers under time pressure. The arithmetic is rarely the hard part. The structure is.

Practice the variation

Test your setup on a twist: suppose Company C produced 500 trucks but only sold 450 at $10.00 each. Revenue would drop to 450 × $10.00 = $4,500, while total cost stays $1,900 (you still paid to make all 500). Profit becomes $4,500 − $1,900 = $2,600. Same scaffold, one careful change. That single move, separating units produced from units sold, is one of the most common ways the GMAT raises a problem from medium to hard.

Where this fits in your GMAT prep

Profit, cost, and tiered-rate problems are core GMAT Focus Quantitative Reasoning material. They reward exactly the habits MBA House teaches: read the precise question, set up before you compute, and treat attractive answers as suspects rather than friends. If you want the full picture of the current exam, start with what the GMAT is and our breakdown of the GMAT Focus Edition. To turn practice into a score, our GMAT Focus tutor NYC page explains how live classes and private tutoring work, and our guide to building GMAT and admissions strategy together shows how a target score should be tied to your school list, not chosen at random.

GMAT profit question FAQs

What is the answer to the Company C toy trucks question?

The answer is C, $3,100. Revenue is 500 × $10.00 = $5,000. Cost is 100 × $5.00 ($500) plus 400 × $3.50 ($1,400), totaling $1,900. Profit is $5,000 − $1,900 = $3,100.

How do you calculate gross profit on the GMAT?

Gross profit equals total revenue minus total cost of goods. Find revenue (units sold × price), find total cost (sum of every cost tier), then subtract. Keep the two in separate columns so you never mix them up.

Why is the first 100 trucks priced differently from the additional 400?

It is a tiered, or marginal, cost structure. The first 100 units cost $5.00 each and every unit after that costs $3.50. Price each tier separately and add them; you cannot apply one blended rate to all 500 units.

What is the most common mistake on tiered-cost problems?

Averaging, or applying a single price to every unit. Multiplying all 500 trucks by $5.00 or by $3.50 produces a wrong total cost and lands you on a trap answer (B or D). Each tier has its own rate and quantity.

Is this a hard GMAT Quant question?

It is medium difficulty. The arithmetic is light, but the GMAT rewards a clean setup. The difficulty is in reading "first 100" versus "additional" correctly and not confusing revenue with profit.