kapilhede17
Because of an upcoming increase in the rent for the performance space used by the Greenland Theatre company, the company plans to maximize profits by reducing by one-half the length that each of the shows in its upcoming season will run, from two months to one month. Over 90 percent of the company's regular audience consists of subscribers, and the subscription price will remain the same, as will the number and quality of shows produced. Extensive surveys show that neither subscribers nor advertisers will be lost if the company's plan is instituted.
Which of the following, if true, provides the strongest evidence that the theatre company's profits are likely to decline if the plan is instituted?
The actors' union requires that a company the size of Greenland Theatre must contractually hire actors for a minimum of three months, and shows generally do not require more than a month of rehearsal.
The majority of the company's subscribers are less concerned about a possible drop in the number of performances than they are about a possible decrease in the quality of those performances.
Since Greenland Theatre is one of the few reputable theatre companies in the area, many of the company's subscribers would still renew their subscriptions if the subscription prices increased.
Most of the advertisers that purchase space in the programs for the different productions will continue to spend the same amount on advertising per week as they have in the past.
Production costs, including playwright royalties, fees for designers, and set and costume building expenses, are expected to remain stable.
Responding to a pm:
Premises:
Rent is increasing so company will cut down costs by reducing show lengths from 2 months to 1 month.
Most of company audience is subscribers who will remain intact after the change.
Advertisers will not be lost either. (So it seems that the company's revenue will remain the same but the cost will be cut)
Plan:
Maximize profit by keeping revenue similar but reducing cost.
We need to find the option that will lead to profits declining (not increasing as per the plan). So we need to find the option which will have a negative impact on the plan (revenue will decrease or cost will increase or both)
(A) The actors' union requires that a company the size of Greenland Theatre must contractually hire actors for a minimum of three months, and shows generally do not require more than a month of rehearsal.
So the company must be hiring actors for 3 months at this time too. This option tells us that the cost of actors would stay the same even if the pan is implemented. It does not lead to lower revenue or higher costs. Not the answer.
(B) The majority of the company's subscribers are less concerned about a possible drop in the number of performances than they are about a possible decrease in the quality of those performances.
We are given that subscribers will stay put with decrease in number of performances. Does not impact our plan.
(C) Since Greenland Theatre is one of the few reputable theatre companies in the area, many of the company's subscribers would still renew their subscriptions if the subscription prices increased.
Out of scope. Argument says that the subscription price will remain the same in the plan. What will happen if the subscription price is increased is immaterial.
(D) Most of the advertisers that purchase space in the programs for the different productions will continue to spend the same amount on advertising per week as they have in the past.
Important point - Advertisers will spend the same amount per week. So if instead of 8 weeks, they advertise for 4 weeks only (since the play will run for 4 weeks only), the revenue will decrease. This could mean lower profits. Hence this is our answer.
(E) Production costs, including playwright royalties, fees for designers, and set and costume building expenses, are expected to remain stable.
Prod Costs are expected to remain stable. It does not impact our plan.
Answer (D)