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28 Jan 2020, 03:43
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A
Be sure to select an answer first to save it in the Error Log before revealing the correct answer (OA)!
Difficulty:
55%
(hard)
Question Stats:
74% (02:53) correct
26%
(02:48)
wrong
based on 194
sessions
History
Date
Time
Result
Not Attempted Yet
An entrepreneur who is planning to set up a restaurant estimates that the monthly costs of running the restaurant will be given by the formula C = 15000 + 2000n + 5m, where C is in dollars, n is the number of employees at the restaurant and m is the number of orders received in the month. He plans to start the restaurant with only 2 employees and to hire 1 new employee each month. He estimates that the average order value at his restaurant will be $50 and that the number of orders per month will increase by 10% month on month. If the estimated number of orders the restaurant receives in the first month of its existence is 1000, then as per this model, after how many months of operation will the restaurant first achieve a profit margin of 20% or more?
A. 1
B. 2
C. 3
D. 6
E. Cannot be determined
A. 1
B. 2
C. 3
D. 6
E. Cannot be determined
28 Jan 2020, 08:56
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lnm87
In the first month, n=2 and m=1000, so the costs are 15,000 + (2000)(2) + (5)(1000) = $24,000. If the restaurant earns $50 per order for 1000 orders, its revenue is $50,000. That's more than double its costs, so its profit margin is vastly in excess of 20% in its first month, and the answer is 1.
It's very strange to pose the question this way (why ask about exceeding 20% specifically if in the first month the profit margin is in excess of 50% (edited - I wrote the wrong number in my first post)), and that makes me wonder if a zero is missing somewhere in the cost formula. But if the question were any more complicated, and it were required to tediously compute the profit margin for several different months, or develop a general formula for profit percentage, it would not be remotely realistic as a GMAT question.
28 Jan 2020, 10:00
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IanStewart
After a long time you are back. Welcome.
Exactly the reason of posting the question. On solving for the first month only it was clear that the profit is more than the cost then why as for 20%.
Something seems to be missing and that thought kept me engrossed for a long time.
Later, the explanation given is also for 20%
. Didn't like it at all after reviewing the solution. It creates a hell of a confusion and a waste of time.
Thanks for reaching out anyway.
