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In order to increase revenues, a cell-phone company has

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In order to increase revenues, a cell-phone company has [#permalink] New post 21 May 2013, 05:45
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In order to increase revenues, a cell-phone company has decided to change its fee structure.Instead of charging a flat rate of $20 per month and $0.50 for every minute over 200 minutes, the company will now charge $50 per month for unlimited usage.

Which of the following is a consideration that, if true, suggests that the new plan will not actually increase the company's revenues?

A) A rival-company , which charges no start-up fee , offers an unlimited calling plan for $40 per month.
B) Two-thirds of the company's customers use less than 500 minutes per month.
C) Studies have shown that customers using unlimited calling plans will increase their monthly usage of minutes by over 50 percent.
D) One-fifth of the company's customers use in excess of 1,000 minutes per month.
E) In recent months the company has received several complaints of insufficient signal strength and poor customer service.
[Reveal] Spoiler:
how to come to conclusion of the solution to be a).I choose B. But according to the solution , the answer is a. and Why?


Source: Mc-Graw Hill's
[Reveal] Spoiler: OA

Last edited by doe007 on 21 May 2013, 06:41, edited 2 times in total.
Entered complete question, updated source, and changed topic name
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Re: In order to increase revenues, a cell-phone company has [#permalink] New post 21 May 2013, 06:49
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The company is expecting an increase of revenue by increasing the monthly fee. Here the underlying assumption is that the customer base will remain unchanged. If a competitor offers a much cheaper plan with similar benefits, it is likely that customers will switch to that rival company’s plan and that will reduce the company’s revenue.

A) Correct answer.
B) Without knowing cost of calls per minute, we cannot deduce whether new plan will increase the company's revenues.
c) This statement again does not provide any information on whether new plan will increase the company's revenues.
D) If this true, new plan may or may not increase the company's revenues, but we cannot say for sure.
E) This may affect the customer base. However, there is no information on effect of new plan on the company's revenues.
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Re: In order to increase revenues, a cell-phone company has [#permalink] New post 18 Aug 2013, 20:51
ruplun wrote:
In order to increase revenues, a cell-phone company has decided to change its fee structure.Instead of charging a flat rate of $20 per month and $0.50 for every minute over 200 minutes, the company will now charge $50 per month for unlimited usage.

Which of the following is a consideration that, if true, suggests that the new plan will not actually increase the company's revenues?

A) A rival-company , which charges no start-up fee , offers an unlimited calling plan for $40 per month.
B) Two-thirds of the company's customers use less than 500 minutes per month.
C) Studies have shown that customers using unlimited calling plans will increase their monthly usage of minutes by over 50 percent.
D) One-fifth of the company's customers use in excess of 1,000 minutes per month.
E) In recent months the company has received several complaints of insufficient signal strength and poor customer service.
[Reveal] Spoiler:
how to come to conclusion of the solution to be a).I choose B. But according to the solution , the answer is a. and Why?


Source: Mc-Graw Hill's


A) A rival-company , which charges no start-up fee , offers an unlimited calling plan for $40 per month.
Competition from rivals is not a concern. We are asked how new plan will not increase company's revvenues.

B) Two-thirds of the company's customers use less than 500 minutes per month.
Suppose, we have 99 customers.

Older PLan: 2/3 of 99 => 66 people use less than 500 min/month.

To minimize the plan's value, lets assume these 66 people make less than 200 min/month.

Now, they will be charged 66* 20$ => 1320$

Remaining 33 people, lets assume they make 500min/month.
they will be charge 33*20$ + 33*0.5*300 => 660 + 4950 => 5610$

total revenues for Older plan => 1320 + 5610 => 6930$

REMEMBER, this is the minimal cost.
New plan: 50$ per person
50*99 => 4950$

Thus plan B is not effective. CORRECT

C) Studies have shown that customers using unlimited calling plans will increase their monthly usage of minutes by over 50 percent.
This will show the new plan will be more effective than expected.

D) One-fifth of the company's customers use in excess of 1,000 minutes per month.
This can also be calculated as per B. and will hold true.

E) In recent months the company has received several complaints of insufficient signal strength and poor customer service.

Out of Scope.

I am confused b/w B and D, however i am more confused how A is correct??

Experts Please help..!!!

Thanks,
Jai
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Re: In order to increase revenues, a cell-phone company has [#permalink] New post 07 Oct 2013, 23:59
C and E can be easily eliminated
Now we have to choose between A, B or D
"Charging a flat rate of $20 per month and $0.50 for every minute over 200 minutes" means
0 to 200 mins- $20 fixed
from 201st min on wards- $1/2 for every min
B. Two-thirds of the company's customers use less than 500 minutes per month
Let there be 3K customers
Under New plan(N):
All will be charged=(3K) X 50= 150K
Under Old plan(O):
(I)2/3=2K customers ( say they use an avg of 400 min)
fixed :2K X 20= 40K
variable:(400-200)X1/2X2K=200K( here itself the revenue has increased over old plan i.e, 240K when we have calculated for 2/3rd alone. When we add revenue from remaining 1/3, total revenue will be even more higher.
(II)1/3=1K
fixed :
variable:
i.e,{ total of old plan (I)+(II)}>new plan which suggests that the new plan will actually NOT increase the company's revenue.

D) One-fifth of the company's customers use in excess of 1,000 minutes per month.
Under New plan(N):
3K X 50= 150 K
Under Old plan(O):
(I)1/5= 600 customers ( say they talk for avg of 1100min)
fixed :600X50=30K
variable:(1100-200)X1/2X600=270K
HERE ALSO the revenue has increased over old plan i.e, 300K when we have calculated for 2/3rd alone. When we add revenue from remaining 4/5, total revenue will be even more higher.
(II)4/5= 2400 customers
fixed :
variable:
i.e,{ total of old plan (I)+(II)}>new plan which suggests that the new plan will actually not increase the company's revenue.

both B and D are satisfying the condition.
Bumping for further review and discussions.
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Re: In order to increase revenues, a cell-phone company has [#permalink] New post 08 Oct 2013, 02:12
Moreover, if we consider

A) A rival-company , which charges no start-up fee , offers an unlimited calling plan for $40 per month.
(A) can also argued to be true, as, if the above is true then the rival company will attract all the customers of the company charging $50 thus undermining the latter's revenue and not causing an increase in revenues.
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Re: In order to increase revenues, a cell-phone company has [#permalink] New post 08 Oct 2013, 02:16
correction:
(I)1/5= 600 customers ( say they talk for avg of 1100min)
fixed :600X50=30K(wrong)
600X20=12K(correct)
However, final answer not affected.
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Re: In order to increase revenues, a cell-phone company has [#permalink] New post 10 Oct 2013, 15:59
correction1:
variable:(400-200)X1/2X2K=200K( here itself the revenue has increased over old plan(wrong) i.e, 240K when we have calculated for 2/3rd alone. When we add revenue from remaining 1/3, total revenue will be even more higher.

variable:(400-200)X1/2X2K=200K( here itself the revenue has increased over NEW plan(CORRECT) i.e, 240K when we have calculated for 2/3rd alone. When we add revenue from remaining 1/3, total revenue will be even more higher.

SIMILAR correction in second part also.
HERE ALSO the revenue has increased over old plan(wrong) i.e, 300K when we have calculated for 2/3rd alone

HERE ALSO the revenue has increased over NEW plan(CORRECT) i.e, 300K when we have calculated for 2/3rd alone
Sorry for the errors guys. However all errors corrected.
WHERE ARE THE EXPERTS??????
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Re: In order to increase revenues, a cell-phone company has [#permalink] New post 10 Oct 2013, 16:28
Its true that both B and D reduce the company's revenue.
But the math in B and D does not matter if you have another company offering clients @ $10/month cheaper with no start up fee!
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Re: In order to increase revenues, a cell-phone company has [#permalink] New post 10 Oct 2013, 22:59
got it "igotthis" Manager
thanks for the explanation.
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Re: In order to increase revenues, a cell-phone company has [#permalink] New post 18 Oct 2013, 12:08
igotthis wrote:
Its true that both B and D reduce the company's revenue.
But the math in B and D does not matter if you have another company offering clients @ $10/month cheaper with no start up fee!


Actually, I spent 7 minutes - why? Because both B-D give the same answer, so they can't be true, so A is the only answer that can be, but it makes no sense. Maybe subscribers are legally obliged to remain with this company, so A is out of scope, so to accept this answer we are making assumptions that subscribers are free to chose their provider. How is this true? Can we actually make assumptions? Are this kind of questions common?
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Re: In order to increase revenues, a cell-phone company has [#permalink] New post 07 Aug 2014, 14:03
kvazar wrote:
igotthis wrote:
Its true that both B and D reduce the company's revenue.
But the math in B and D does not matter if you have another company offering clients @ $10/month cheaper with no start up fee!


Actually, I spent 7 minutes - why? Because both B-D give the same answer, so they can't be true, so A is the only answer that can be, but it makes no sense. Maybe subscribers are legally obliged to remain with this company, so A is out of scope, so to accept this answer we are making assumptions that subscribers are free to chose their provider. How is this true? Can we actually make assumptions? Are this kind of questions common?


haha you're right. makes me think if i should ever buy a phone on contract or not. = P
Re: In order to increase revenues, a cell-phone company has   [#permalink] 07 Aug 2014, 14:03
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