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Because of an upcoming increase in the rent for the

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Because of an upcoming increase in the rent for the [#permalink] New post 29 Jun 2012, 02:06
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Question Stats:

55% (02:39) correct 45% (01:47) wrong based on 244 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.
[Reveal] Spoiler: OA
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Re: Greeland theatre CR - Kaplan Diagnostic [#permalink] New post 29 Jun 2012, 02:53
(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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Re: Greeland theatre CR - Kaplan Diagnostic [#permalink] New post 30 Jun 2012, 02:39
Can some expert clearly explain how to Pick bw A&C
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Re: Because of an upcoming increase in the rent for the [#permalink] New post 27 Feb 2013, 19:18
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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] New post 01 Mar 2013, 04:35
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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Re: Because of an upcoming increase in the rent for the [#permalink] New post 01 Mar 2013, 05:17
Expert's post
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,

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Re: Because of an upcoming increase in the rent for the [#permalink] New post 26 Jul 2013, 17:59
Okay I don't buy this answer.

The premise states that the run time of shows will be cut from 2 months to 1 month. Answer (A) claims that shows don't require more than 1 month of preparation.

Assuming both these are true, then having to hire an actor for 3 months will clearly increase costs because you have to hire more actors. The only explanation that makes sense is if the same actor can appear in multiple shows.

Pre Change
Hamlet: run time = 2 months, preparation = 1 month
Actor being paid for 3 months

Every 3 months, actors are being paid 3 months salary

Post Change
Hamlet: run time = 1 month, preparation = 1 month
Actor being paid for 3 months

Every 2 months, actors are being paid 3 months salary (effectively, because you have to hire new actors for the next production)

Please tell me how this doesn't increase costs. Vercules, your explanation doesn't do it for me. I understand how (D) can be correct, but I don't understand how (A) can be incorrect.

Edit:

Nevermind, solved it myself. It comes down to the fact that revenues are derived from subscriptions, and not from number of shows. In fact, the prompt states that the number of shows will remain the same, although this doesn't matter. Because these people will pay their subscriptions regardless, the revenue side of it doesn't change. The cost side doesn't change either because their is no need to prioritize the number of different shows ran every year.

For instance, the company can run 4 different productions a year, and hire 4 different actors to play in them

In the old case, the actors will basically be getting paid 1 months salary for 1 months work, 3 months work = 3 months salary
In the new case, the actors will be getting paid 3/2 months salary for 1 months work, 2 months work = 3 months salary

However, because the theater gains no additional revenue from optimizing the amount of productions it runs, then there's no difference between these two cases. If the companies were being paid on the bases on each production, as in, more productions = more revenue, then this matters because the company can optimize to produce 5 productions per year as opposed to 4 productions per year while paying the same actor costs. This is not the case though
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Re: Because of an upcoming increase in the rent for the [#permalink] New post 28 Sep 2013, 03:46
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Profit = Revenue - Cost. Profit will decline if either the revenue decreases or the cost increases. Lets see what constitutes revenue and cost in this case:
Cost = Rent of space + fees of actors + (number of episodes * per episode cost)
Revenue = (number of subscribers * subscription price) + (number of episodes/show * advertising time)

We know that Rent is going to increase, and hence the company decides to reduce the number of episodes to half in order to balance production cost. Therefore, if cost is going to remain the same, revenue should decrease in order to reduce profits.

Option A - actors were paid for 3 months earlier and are paid for 3 months even now.
Option D - number of episodes per show will decrease which will decrease (number of episodes/show * advertising time) and therefore result in lower revenues. Hence, D is the correct answer.
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Re: Because of an upcoming increase in the rent for the [#permalink] New post 28 Sep 2013, 07:00
This is very much similar to the below mentioned GMAT Prep CR question. A paraphrase of GMAT Prep question. :-)...

Because postage rates are rising, Home Decorator magazine plans to maximize its profits by reducing by one half the number of issues it publishes each year. The quality of articles, the number of articles published per year, and the subscription price will not change. Market research shows that neither subscribers nor advertisers will be lost if the magazine's plan is instituted.

Which of the following, if true, provides the strongest evidence that the magazine's profits are likely to decline if the plan is instituted?

A. With the new postage rates, a typical issue under the proposed plan would cost about one-third more to mail than a typical current issue would.

B. The majority of the magazine's subscribers are less concerned about a possible reduction in the quantity of the magazine's articles than about a possible loss of the current high quality of its articles.

C. Many of the magazine's long-time subscribers would continue their subscriptions even if the subscription price were increased.

D. Most of the advertisers that purchase advertising space in the magazine will continue to spend the same amount on advertising per issue as they have in the past.

E. Production costs for the magazine are expected to remain stable.
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Re: Because of an upcoming increase in the rent for the [#permalink] New post 19 Jun 2014, 03:38
In Option D, as advertisers will pay weekly basis, Revenue will be reduced for theatre company. This is clear winner
Re: Because of an upcoming increase in the rent for the   [#permalink] 19 Jun 2014, 03:38
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