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A discount retailer of basic household necessities employs thousands

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A discount retailer of basic household necessities employs thousands  [#permalink]

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New post Updated on: 10 Oct 2018, 03:08
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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 wage 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.

Originally posted by lexis on 12 May 2008, 02:40.
Last edited by Bunuel on 10 Oct 2018, 03:08, edited 3 times in total.
Renamed the topic and edited the question.
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Re: A discount retailer of basic household necessities employs thousands  [#permalink]

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New post 09 Jun 2011, 01:21
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ruturaj wrote:
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.

choice D is what i thought of..please let me knw why its wrong


Which of the following, if true, most helps to resolve the apparent paradox?
Paradox: How the retailer made high profits despite high operating cost caused by the increase in minimum wage?


(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.
This gives us a reason why the operating costs were increased, but it gives us no clue how the profits were increased.

(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.
It gives us an association between customers and wage but a little cumbersome to understand. Let's keep this aside as a prospective answer choice and come back to it later.


Come back here after reading rest of the choices:
This is giving us a reason behind his profits. This is telling us that the increase in minimum wage of the people may result in increased volume of the customers, who earn minimum wage, and purchase from those customers.

CORRECT

(C) The retailer’s operating costs, other than wages, increased substantially after the increase in the minimum
wage rate went into effect.
Again, this gives us the reason for the soared production costs but no clue about the profits.

(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.
Here the retailer spent more money because of the minimum wage increase. To make matter worse for himself, the retailer further increased the wage of some of his employees. This surely makes the operating costs high, very high. But, why are you not telling me what's the factor that contributed to his profits. Not good.

(E) The majority of the retailer’s employees work as cashiers, and most cashiers are paid the minimum wage.
This is a fact that's not giving me a reason for the profit. Just by raising cashiers pay won't give him the required profit.

Go back to B.

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A discount retailer of basic household necessities employs thousands  [#permalink]

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New post 10 Sep 2012, 21:06
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lexis wrote:
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 wage 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.



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.
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Re: A discount retailer of basic household necessities employs thousands  [#permalink]

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New post 14 Apr 2013, 15:29
lexis wrote:
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.


Fairly easy Resolve the Paradox. In this kind of question, we need to find "new" element which can solve both sides of the paradox, not only one side. In addition, there's no conclusion here, just facts.

Fact: A discount retailer pays most of employees at the minimum wage rate
Fact: minimum wage increased. Operating expenses should increase. Profit should decrease.
Fact: But retailer's profit increased markedly.

Profit = Revenue - Cost.
What if Revenue increases faster than does cost. >>> Profit will increase.
D says: retailer's customers = people who earn minimum wages. If their income increase >>> they may purchase more >>> Retailer's profit may increase.

D is correct.

Hope it helps.
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Re: A discount retailer of basic household necessities employs thousands  [#permalink]

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New post 28 Feb 2015, 05:44
The only answer choice wich adresses both parts of the argument (increase of costs and profits) is (B)

(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.


But actually I don't like this one either, because if people earne more they buy also more, OK, but this means that the revenue went up , but as we know revenue is not = Profits. They may sell more, but if the costs went up, they can earn "0"....... poorly structured argument.
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Re: A discount retailer of basic household necessities employs thousands  [#permalink]

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New post 14 Apr 2016, 07:28
Cost increased yet profit has also increased. What is the flaw? Revenue - Cost = Profit. Cost Increase, Profit Increase so Revenue must increase. Answer choice will explain how the revenue can increase.
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Re: A discount retailer of basic household necessities employs thousands  [#permalink]

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New post 14 Apr 2016, 07:37
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QuanVsVerb wrote:
Cost increased yet profit has also increased. What is the flaw? Revenue - Cost = Profit. Cost Increase, Profit Increase so Revenue must increase. Answer choice will explain how the revenue can increase.


B gives a valid reason. customers of the retailer - people who earn min. wage. if people have more $, then they spend more -> increased revenue.
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Re: A discount retailer of basic household necessities employs thousands  [#permalink]

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New post 03 Sep 2018, 07:32
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lexis wrote:
Official Guide for GMAT Verbal Review, 2nd Edition

Practice Question
Question No.: 72
Page: 145
Difficulty:


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 wage 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.



The discount retail store that meets the basic consumption of the family employs thousands of employees and gives the majority the minimum wage. However, because the federal government has imposed a minimum wage standard, the operating costs of retail stores will increase substantially, but the profits of retail stores will increase substantially. Profit = sales - cost (running cost, labor cost) The
problem is to solve the problem of increasing the cost of retail stores and increasing profits
. A. More than half of the operating costs of retail stores come from wages, and only a small part of the wages are given. Management, this answer has nothing to do with the increase in profits. Instead, it shows that most of the wages are given to ordinary employees. Their minimum wages have increased, and total operating costs have increased. This does not help explain the public opinion
. If the wage earners, or those who accept the minimum wage, increase the minimum wage, the purchasing power of these people will increase, the sales will increase, and the profit may increase. You can keep a look at
C. In addition to wages, the operating costs of retail stores have also increased significantly. After the implementation of the minimum wage rate, various costs will increase, and it will not help to explain the sharp increase in profits
. If D is not selected , when the minimum wage rate is implemented, the retail store will also increase the number of people who are only higher than the minimum wage. age, this age has nothing to do with the cost of goods and do not choose the bit around may mistakenly choose
E most retail employees Cashier, cashier's most wage is the minimum wage, this was indicated that the costs will increase, and increase profits regardless of the election does not
sum up, B is not correct another point to consider labor costs or purchasing power because operating costs are necessities of life sales Will be able to increase profits, certainly increase the interpretation of public opinion
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Re: A discount retailer of basic household necessities employs thousands &nbs [#permalink] 03 Sep 2018, 07:32
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