Find all School-related info fast with the new School-Specific MBA Forum

It is currently 22 Jul 2014, 16:08

Close

GMAT Club Daily Prep

Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.

Customized
for You

we will pick new questions that match your level based on your Timer History

Track
Your Progress

every week, we’ll send you an estimated GMAT score based on your performance

Practice
Pays

we will pick new questions that match your level based on your Timer History

Not interested in getting valuable practice questions and articles delivered to your email? No problem, unsubscribe here.

Events & Promotions

Events & Promotions in June
Open Detailed Calendar

CR question

  Question banks Downloads My Bookmarks Reviews Important topics  
Author Message
Intern
Intern
avatar
Joined: 23 Aug 2012
Posts: 5
Followers: 0

Kudos [?]: 0 [0], given: 1

CR question [#permalink] New post 10 Sep 2012, 10:40
Hi first sorry for opening new thread ,,but i have to ..


This is the question

A discount retailer of basic household necessities employs thousands of people and pays
most of them at the minimum wage rate. Yet following a federally mandated increase of the
minimum wage rate that increased the retailer's operating costs considerably, the retailer's
profits increased markedly.
Which of the following, if true, most helps to resolve the apparent paradox?

(A) Over half of the retailer's operating costs consist of payroll expenditures; yet only a
small percentage of those expenditures go to pay management salaries.
(B) The retailer's customer base is made up primarily of people who earn, or who depend
on the earnings of others who earn, the minimum wage.
(C) The retailer's operating costs, other than wages, increased substantially after the
increase in the minimum wage rate went into effect.
(D) When the increase in the minimum wage rate went into effect, the retailer also raised
the age rate for employees who had been earning just above minimum wage.
(E) The majority of the retailer's employees work as cashiers, and most cashiers are paid the
minimum wage.

Correct answer is B
But I think it is D.
Please explain why B not D.

Thanks in advance.
Retired Moderator
User avatar
Affiliations: PMI, ASQ
Joined: 16 Jun 2012
Posts: 119
GMAT 1: 710 Q49 V38
Followers: 122

Kudos [?]: 672 [0], given: 21

GMAT ToolKit User
Re: CR question [#permalink] New post 10 Sep 2012, 11:07
Expert Post
Veritas Prep GMAT Instructor
User avatar
Joined: 16 Oct 2010
Posts: 4558
Location: Pune, India
Followers: 1028

Kudos [?]: 4449 [0], given: 162

Re: CR question [#permalink] New post 10 Sep 2012, 21:06
Expert's post
vidyad wrote:
Hi first sorry for opening new thread ,,but i have to ..


This is the question

A discount retailer of basic household necessities employs thousands of people and pays
most of them at the minimum wage rate. Yet following a federally mandated increase of the
minimum wage rate that increased the retailer's operating costs considerably, the retailer's
profits increased markedly.
Which of the following, if true, most helps to resolve the apparent paradox?

(A) Over half of the retailer's operating costs consist of payroll expenditures; yet only a
small percentage of those expenditures go to pay management salaries.
(B) The retailer's customer base is made up primarily of people who earn, or who depend
on the earnings of others who earn, the minimum wage.
(C) The retailer's operating costs, other than wages, increased substantially after the
increase in the minimum wage rate went into effect.
(D) When the increase in the minimum wage rate went into effect, the retailer also raised
the age rate for employees who had been earning just above minimum wage.
(E) The majority of the retailer's employees work as cashiers, and most cashiers are paid the
minimum wage.

Correct answer is B
But I think it is D.
Please explain why B not D.

Thanks in advance.


What does the argument tell you? It gives you a paradox. What is it?
Minimum wage increased which increased the operating cost. Still, profits increased.

How can you resolve this paradox? We know Profit = Revenue - (Operating Cost + Fixed Cost)

If operating cost has increased, the profit can increase if at least one of two things happen. Either fixed costs reduce or revenue increases by more than the increase in the operating cost.

Option (B) The retailer's customer base is made up primarily of people who earn, or who depend
on the earnings of others who earn, the minimum wage.

Since the salary of the customers (people who get minimum wage) of the retailer has increased, they are probably spending more to buy basic household necessities that the retailer sells. This would lead to an increase in revenue and would help explain the increase in profit.

Option (D) When the increase in the minimum wage rate went into effect, the retailer also raised
the wage rate for employees who had been earning just above minimum wage.

This does not explain the paradox. It only increase the operating cost of the retailer even more.

_________________

Karishma
Veritas Prep | GMAT Instructor
My Blog

Save $100 on Veritas Prep GMAT Courses And Admissions Consulting
Enroll now. Pay later. Take advantage of Veritas Prep's flexible payment plan options.

Veritas Prep Reviews

Intern
Intern
avatar
Joined: 23 Aug 2012
Posts: 5
Followers: 0

Kudos [?]: 0 [0], given: 1

Re: CR question [#permalink] New post 11 Sep 2012, 10:52
VeritasPrepKarishma wrote:
vidyad wrote:
Hi first sorry for opening new thread ,,but i have to ..


This is the question

A discount retailer of basic household necessities employs thousands of people and pays
most of them at the minimum wage rate. Yet following a federally mandated increase of the
minimum wage rate that increased the retailer's operating costs considerably, the retailer's
profits increased markedly.
Which of the following, if true, most helps to resolve the apparent paradox?

(A) Over half of the retailer's operating costs consist of payroll expenditures; yet only a
small percentage of those expenditures go to pay management salaries.
(B) The retailer's customer base is made up primarily of people who earn, or who depend
on the earnings of others who earn, the minimum wage.
(C) The retailer's operating costs, other than wages, increased substantially after the
increase in the minimum wage rate went into effect.
(D) When the increase in the minimum wage rate went into effect, the retailer also raised
the age rate for employees who had been earning just above minimum wage.
(E) The majority of the retailer's employees work as cashiers, and most cashiers are paid the
minimum wage.

Correct answer is B
But I think it is D.
Please explain why B not D.

Thanks in advance.


What does the argument tell you? It gives you a paradox. What is it?
Minimum wage increased which increased the operating cost. Still, profits increased.

How can you resolve this paradox? We know Profit = Revenue - (Operating Cost + Fixed Cost)

If operating cost has increased, the profit can increase if at least one of two things happen. Either fixed costs reduce or revenue increases by more than the increase in the operating cost.

Option (B) The retailer's customer base is made up primarily of people who earn, or who depend
on the earnings of others who earn, the minimum wage.

Since the salary of the customers (people who get minimum wage) of the retailer has increased, they are probably spending more to buy basic household necessities that the retailer sells. This would lead to an increase in revenue and would help explain the increase in profit.

Option (D) When the increase in the minimum wage rate went into effect, the retailer also raised
the wage rate for employees who had been earning just above minimum wage.

This does not explain the paradox. It only increase the operating cost of the retailer even more.



thanks for explanation.
:-D
Re: CR question   [#permalink] 11 Sep 2012, 10:52
    Similar topics Author Replies Last post
Similar
Topics:
CR-1000 CR QUESTIONS perfectstranger 0 22 Jul 2008, 14:10
CR Questions geeturaju 1 13 May 2008, 22:15
CR Questions vd 1 20 Apr 2008, 23:42
CR The question to Vavali 6 21 Mar 2008, 12:56
CR Question ayushi 5 09 Oct 2006, 07:23
Display posts from previous: Sort by

CR question

  Question banks Downloads My Bookmarks Reviews Important topics  


GMAT Club MBA Forum Home| About| Privacy Policy| Terms and Conditions| GMAT Club Rules| Contact| Sitemap

Powered by phpBB © phpBB Group and phpBB SEO

Kindly note that the GMAT® test is a registered trademark of the Graduate Management Admission Council®, and this site has neither been reviewed nor endorsed by GMAC®.