In business, calculating profit and loss across multiple transactions requires care and logic. This seemingly simple scenario below will help you practice your analytical skills and avoid common pitfalls when calculating profit.
1. The Scenario
Mr. Miller is a cattle trader. One day, he buys a cow from a farmer for $500.
A few days later, he sells this cow to another person for $700.
Not long after, Mr. Miller buys the exact same cow back for $800 because the previous buyer couldn’t care for it.
The very next day, Mr. Miller sells the cow to a different person for $900.
The Question: After all these transactions, how much profit did Mr. Miller make?
2. The Answer: How Much Did Mr. Miller Profit?
After all the transactions, the total profit Mr. Miller earned is $300.
Detailed Explanation of the Calculation
This problem can be confusing if you don’t treat each transaction as a separate event. Here is the correct way to calculate it:
Transaction 1
- Mr. Miller buys the cow for $500.
- He sells it for $700.
- Profit: $700 – $500 = $200.
Transaction 2
- Mr. Miller buys the cow back for $800.
- He sells it again for $900.
- Profit: $900 – $800 = $100.
Total Profit
Simply add the profit from the two independent transactions: $200 + $100 = $300.
3. Why People Get This Puzzle Wrong
Many people make the mistake of trying to link all the numbers together, thinking that since he sold the cow for $700 and bought it back for $800, he must have lost $100 in the middle.
However, the best way to think about it is as two separate business deals. The first deal was closed with a $200 profit. He could have taken that money and bought anything. He just happened to use it to invest in the same cow again for a new, independent transaction.
The trick of the puzzle is to confuse you with the sequence of numbers, but the core logic is simple if you isolate each complete cycle of buying and selling.
After two complete buy-and-sell transactions involving the same cow, Mr. Miller made a total profit of $300. This is a fun brain teaser that helps sharpen logical thinking and the skill of analyzing business transactions.
