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Manager
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Because of an upcoming increase in the rent for the [#permalink]
29 Jun 2012, 03:06
Question Stats:
56% (02:20) correct
43% (01:45) wrong based on 1 sessions
Because of an upcoming increase in the rent for the performance space used by the Greenland Theatre company, the company plans to maximize profits by reducing by one-half the length that each of the shows in its upcoming season will run, from two months to one month. Over 90 percent of the company's regular audience consists of subscribers, and the subscription price will remain the same, as will the number and quality of shows produced. Extensive surveys show that neither subscribers nor advertisers will be lost if the company's plan is instituted. Which of the following, if true, provides the strongest evidence that the theatre company's profits are likely to decline if the plan is instituted? The actors' union requires that a company the size of Greenland Theatre must contractually hire actors for a minimum of three months, and shows generally do not require more than a month of rehearsal. The majority of the company's subscribers are less concerned about a possible drop in the number of performances than they are about a possible decrease in the quality of those performances. Since Greenland Theatre is one of the few reputable theatre companies in the area, many of the company's subscribers would still renew their subscriptions if the subscription prices increased. Most of the advertisers that purchase space in the programs for the different productions will continue to spend the same amount on advertising per week as they have in the past. Production costs, including playwright royalties, fees for designers, and set and costume building expenses, are expected to remain stable.
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Director
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Re: Greeland theatre CR - Kaplan Diagnostic [#permalink]
29 Jun 2012, 03:53
(B) looks tempting but it's not mentioned that whether the quality of the show will increase or decrease, it is just told in (B) that the subscribers will be bothered IF the quality goes down. The overall show time is going to be reduced by 50% (from two months to one month) if, Advertisements are constant as before, may lead to reduction in the revenue. Advertisement is DIRECTLY PROPORTIONAL to Show Time. so, IMO-D
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Manager
Joined: 14 May 2012
Posts: 52
Location: United States
Concentration: Finance, Strategy
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Re: Greeland theatre CR - Kaplan Diagnostic [#permalink]
30 Jun 2012, 03:39
Can some expert clearly explain how to Pick bw A&C
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Senior Manager
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Re: Because of an upcoming increase in the rent for the [#permalink]
27 Feb 2013, 20:18
There could be many assumptions/strengthens in this stem. Profit = Revenue - cost Decline in profit ,so there could be many ways . 1.Keeping revenue constant,increase in cost. 2.Keeping cost constant,decrease in revenue. 3.Both decrease,but decrease in revenue is more than that of cost. However,in the answer options we have option number (2). decrease in revenue as now there will be shows for only 1 month instead of 2 so revenue/week * number of weeks will decrease Hence ,OA
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Re: Because of an upcoming increase in the rent for the [#permalink]
01 Mar 2013, 05:35
Can someone explain why A can not be the answer?
Premise states that 1) Shows are reduced from 2 months to 1 month. 2) Most of the costs are not going to be affected due to this idea.
Choice A states that actors are contracted for 3 months and it takes 1 month for rehearsal, probably, that's why originally shows were scheduled for 2 months. Wouldn't the company end up paying actors or its agency for 3 months while employing them only for 2 months? [We could ask there's no information on whether actors are reused between different productions. But, I am unable to identify C even a contender because, it states the advertisers will continue to spend the same amount and it will be on weekly basis
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GMAT Club Verbal Expert
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Re: Because of an upcoming increase in the rent for the [#permalink]
01 Mar 2013, 06:17
bforbala wrote: Can someone explain why A can not be the answer?
Premise states that 1) Shows are reduced from 2 months to 1 month. 2) Most of the costs are not going to be affected due to this idea.
Choice A states that actors are contracted for 3 months and it takes 1 month for rehearsal, probably, that's why originally shows were scheduled for 2 months. Wouldn't the company end up paying actors or its agency for 3 months while employing them only for 2 months? [We could ask there's no information on whether actors are reused between different productions. But, I am unable to identify C even a contender because, it states the advertisers will continue to spend the same amount and it will be on weekly basis Hi bforbala, Yes the premise states that time per show will be reduced to half, so the number of shows that were to be presented in two months will now be presented in one months. The argument then says that the costs would remain the same; therefore the company should earn the same profits.
The question stem asks for the "strongest reason" that the company's profits are likely to decline. As the costs and the number of subscribers would remain the same, the revenue from tickets and the costs would remain the same, therefore we have to find an answer choice that may provide some information about some decrease in an additional source of revenue.(A) The actors' union requires that a company the size of Greenland Theatre must contractually hire actors for a minimum of three months, and shows generally do not require more than a month of rehearsal. (A) seems to be a tempting answer choice, but if this were true then the three month contract is still running and the argument states that the costs would remain the same. So, unless there is any change in contract with the actors, the costs will remain the same and the profits would remain unchanged.(D) Most of the advertisers that purchase space in the programs for the different productions will continue to spend the same amount on advertising per week as they have in the past. This choice provides an additional source of revenue (or profits). If the advertisers are going to pay for 4 weeks instead of 8 weeks the profit is bound to decline. Therefore, this choice gives us the most strongest reason among all the others that the profits are likely to decline if the theater company institutes this plan. Hope this helps, Vercules
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Re: Because of an upcoming increase in the rent for the
[#permalink]
01 Mar 2013, 06:17
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