The annual production in cement industry is subject to business cycles. The production increases for two consecutive years consistently by 18% and decreases by 12% in the third year. Again in the next two years, it increases by 18% each year and decreases by 12% in the third year. Talking 2008 as the base year, what will be the approximate effect on cement production in 2012?
Explanation:
In the given time period, there would be an increase of 18% from 2008-2009, followed by a compounded increase of 18% from 2009-2010, followed by a compounded decrease of 12% from 2010-2011. Finally, there is a compounded increase of 18%.
Hence, it is clear that effectively the production has increased. Hence, options 2 and 4 are ruled out.
Also, even if the increase is not compounded, there would have been a net increase of 18 + 18 – 12 + 18 = 42%.
Since the increase is compounded, the net effect would be more than 42%.
The exact value in 2012, if the base value is x in 2008 is x × 1.18 × 1.18 × 0.88 × 1.18 = 1.445x
This is an increase of approximately 45%.
Hence, option (c).
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