GMAT Question of the Day: Daily via email | Daily via Instagram New to GMAT Club? Watch this Video

 It is currently 04 Apr 2020, 14:04

### GMAT Club Daily Prep

#### Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.

Customized
for You

we will pick new questions that match your level based on your Timer History

Track

every week, we’ll send you an estimated GMAT score based on your performance

Practice
Pays

we will pick new questions that match your level based on your Timer History

# Because postage rates are rising, Home Decorator magazine plans to max

Author Message
TAGS:

### Hide Tags

Manager
Joined: 18 Jan 2018
Posts: 79
Location: India
Concentration: Finance, Marketing
GMAT 1: 650 Q49 V30
GPA: 3.98
Re: Because postage rates are rising, Home Decorator magazine plans to max  [#permalink]

### Show Tags

31 Jul 2019, 23:43
Hi, can someone explain why option E is wrong? If we look at the equation "Profit per unit = Revenue per unit- Production cost per unit, we can see that if the per unit cost of production increases, then our per unit profit shall decrease.

Keeping this in mind, if the overall production cost remains stable (same) but the units produced are less, won't the per unit cost of production increase?

That would lead to lesser profit per unit and therefore, lesser overall profit.

Am I missing something?

Posted from my mobile device
Veritas Prep GMAT Instructor
Joined: 16 Oct 2010
Posts: 10240
Location: Pune, India
Re: Because postage rates are rising, Home Decorator magazine plans to max  [#permalink]

### Show Tags

01 Aug 2019, 03:20
1
aalakshaya wrote:
Hi, can someone explain why option E is wrong? If we look at the equation "Profit per unit = Revenue per unit- Production cost per unit, we can see that if the per unit cost of production increases, then our per unit profit shall decrease.

Keeping this in mind, if the overall production cost remains stable (same) but the units produced are less, won't the per unit cost of production increase?

That would lead to lesser profit per unit and therefore, lesser overall profit.

Am I missing something?

Posted from my mobile device

You are assuming that fixed cost will remain the same. Production costs mentioned in (E) could very well be "cost per issue" which is expected to remain stable. If you really think about it, most costs of magazine production would be variable cost (amount paid to writers per article, cost of printing the magazine, cost of postage etc). These will be incurred when an issue is printed.
The intent of (E) is to say that the costs are not going to increase.

(D) on the other hand, says that advertisers will spend the same amount per issue as before. So fewer issues will mean less revenue from advertisers. So even though advertisers will not be lost, there will be less money coming from them.

_________________
Karishma
Veritas Prep GMAT Instructor

VP
Joined: 14 Feb 2017
Posts: 1368
Location: Australia
Concentration: Technology, Strategy
GMAT 1: 560 Q41 V26
GMAT 2: 550 Q43 V23
GMAT 3: 650 Q47 V33
GMAT 4: 650 Q44 V36
GMAT 5: 650 Q48 V31
GMAT 6: 600 Q38 V35
GMAT 7: 710 Q47 V41
GPA: 3
WE: Management Consulting (Consulting)
Re: Because postage rates are rising, Home Decorator magazine plans to max  [#permalink]

### Show Tags

05 Aug 2019, 17:05
The plan is to reduce the #issues published by 50% in order to combat the increase in postage costs.

What will likely indicate that profits will decline?
D is correct because if advertisers are spending the same amount and they aren't INCREASING their advertising then the company forgoes the revenue it would have made from advertising on previously published issues (the other 50%).

A is incorrect - we are actually already told this, but we aren't told specifically. This just indicates that costs go up FRACTIONALLY, but we need to consider stronger impacts to profits - decreases in revenues equivalent to 50% of previously published issues as per A are significantly more damaging to the proposed plan.
_________________
Here's how I went from 430 to 710, and how you can do it yourself:
Manager
Joined: 30 Oct 2019
Posts: 215
Location: United Kingdom
Concentration: General Management, Technology
GPA: 4
Re: Because postage rates are rising, Home Decorator magazine plans to max  [#permalink]

### Show Tags

14 Dec 2019, 10:48
willacethis wrote:
Hi, can someone explain why option E is wrong? If we look at the equation "Profit per unit = Revenue per unit- Production cost per unit, we can see that if the per unit cost of production increases, then our per unit profit shall decrease.

Keeping this in mind, if the overall production cost remains stable (same) but the units produced are less, won't the per unit cost of production increase?

That would lead to lesser profit per unit and therefore, lesser overall profit.

Am I missing something?

Posted from my mobile device

So you just assumed that the cost of production per unit will increase. This is beyond the scope of the given text. lets try to stick to the passage and not make any further assumptions.
Passage says revenue remains the same, and answer choice says production cost also does not change. Which means profit would be the same as well. You are looking for a decline in profit.

Hope it helps.
Re: Because postage rates are rising, Home Decorator magazine plans to max   [#permalink] 14 Dec 2019, 10:48

Go to page   Previous    1   2   [ 24 posts ]

Display posts from previous: Sort by