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?
We need to find how the plan will incur a loss:
(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.
This should result in the profit, because the plan is suggesting a cut in the number of mails, reducing the mailing charges to half.
(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.
Again this is an advantage, because the subscribers will not unsubscribe just on the account of the reduction in number of issues. Also, it is clearly mentioned in the passage that quality will not deteriorate.
(C) Many of the magazine's long-time subscribers would continue their subscriptions even if the subscription
price were increased.
Out of context. Subscription prices are not 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.
This is big drawback and will hurt the plan.
If an advertiser was spending $10K/issue and there were 12 issues before. The magazine was getting $120K/year as revenue.
If the plan was instituted,
the number of issues=6
Spending by the same advertiser/issue= $10K
Total revenue per year=$60K
(E) Production costs for the magazine are expected to remain stable.
Still a profit from saving on mailing charges.
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