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# CR question

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Intern
Joined: 23 Aug 2012
Posts: 5

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10 Sep 2012, 11:40
Hi first sorry for opening new thread ,,but i have to ..

This is the question

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.

But I think it is D.
Please explain why B not D.

Retired Moderator
Affiliations: PMI, ASQ
Joined: 16 Jun 2012
Posts: 118
GMAT 1: 710 Q49 V38

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10 Sep 2012, 12:07
Veritas Prep GMAT Instructor
Joined: 16 Oct 2010
Posts: 7443
Location: Pune, India

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10 Sep 2012, 22:06
Hi first sorry for opening new thread ,,but i have to ..

This is the question

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.

But I think it is D.
Please explain why B not D.

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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Intern
Joined: 23 Aug 2012
Posts: 5

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11 Sep 2012, 11:52
VeritasPrepKarishma wrote:
Hi first sorry for opening new thread ,,but i have to ..

This is the question

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.

But I think it is D.
Please explain why B not D.

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.

thanks for explanation.
Re: CR question   [#permalink] 11 Sep 2012, 11:52
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