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GMAT Club Legend
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Price and wage controls are the only way to control [#permalink]
 09 Jun 2004, 12:10
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Price and wage controls are the only way to control inflation. But wage controls limit worker spending, which, in turn, results in reduced corporate profits if price controls are in place.
Assume the above statements are true. Which of the following statements also must be true if corporate profits are not decreasing?
A) if there is inflation, wage controls are not in place
B) if there is inflation, it is not being controlled
C) workers have less money to spend
D) price controls are in effect
E) wage controls are in effect
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Paul
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C My final answer. I changed it from E to D to C.
For corporate profits to be same or increase the wages should be in control and/or prices should be uncontrolled.
Case1: Now consider a situation in which wages and prices are in control. Profits will go down as productivity will be low and not enough revenue is generated from the market.
Case 2: If wages are controlled and prices are uncontrolled then depending upon the condition the company will make heavy profit or less profit as the costs are down and revenues can be maximized.
Case3: If wages are uncontrolled and prices are controlled then high cost and low revenue in which case profits will be low.
So in any case the workers will have little to spend either because of low wages or because of high prices, in which case they will find there money to be not enough to purchase something.
I guess 
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I will go with (A)
If more inflation, more price for commodities and more wages required for the employees to live. If profits dont decrease then it means wages are not under control. Obviously inflation wont be under control.
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I would go with D on this
bcoz price control + wage control = low profit
higher inflation = low profit
in order to low inflation we need price control,
if price control is in place,
wage control = less money = low profit, hence choice C is ruled out
D seems logical
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Praveen
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price control + no wage control = more spending = more/constant profit
This cannot happen because these are mutually exclusive events.
no price control + no wage control = more/constant spending = more/constant profit
In both these cases wage is not controlled.
if there is inflation in these cases then itis not controlled.
But there may not be any inflation to begin with
It is possible that price controls are not in place and wage controls are in place . In this case people spend less but per item profit may be higher
Now (B) looks fine to me.
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Director
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I am also leaning towards B, this could be a very tricky one.
Paul what is the OA?
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Praveen
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Are you that anxious to know right away? 
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Paul
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Senior Manager
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I'm stuck between A & D: from last statement its clear that since corp profits r not decreasing then wage controls r not in effect.........hence price control MAY be in effect, but what if inflation is there?? I guess I'll pick A........!!
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Manager
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according to the statement given ..a comapny cannot be in profit if there is wage control or price control under inflation ....so the only possibility seems to me is B
Pls the OA ...paul
baruna
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GMAT Club Legend
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Alright, OA is B. Nice discussion everyone.
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Paul
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Re: CR: Price & wage control [#permalink]
09 Jun 2004, 18:04
Paul wrote: Price and wage controls are the only way to control inflation. But wage controls limit worker spending, which, in turn, results in reduced corporate profits if price controls are in place.
Assume the above statements are true. Which of the following statements also must be true if corporate profits are not decreasing?
A) if there is inflation, wage controls are not in place
B) if there is inflation, it is not being controlled
C) workers have less money to spend
D) price controls are in effect
E) wage controls are in effect
A & B are very similar. A is bit weaker since it does not mention price control, hence it could be assumed to be in place.
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Re: CR: Price & wage control
[#permalink]
09 Jun 2004, 18:04
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