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# If new working practices raise a firm s productivity, will

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Director
Joined: 29 Oct 2004
Posts: 794
If new working practices raise a firm s productivity, will  [#permalink]

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Updated on: 15 Mar 2018, 21:37
4
00:00

Difficulty:

45% (medium)

Question Stats:

59% (01:16) correct 41% (01:27) wrong based on 203 sessions

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If new working practices raise a firm's productivity, will the firm respond by paying its workers more? Not in a competitive market. In such a market the firm, to gain a competitive edge, will reduce prices. The workers' real wages, as measured by those wages' purchasing power, will still rise because of lower prices.

In a competitive market which of the following, if true, ensures that the workers of a firm that achieved productivity gains will derive from these gains the benefit of higher real wages?

(A) The workers' firm continues to achieve productivity gains.
(B) Other firms do not achieve comparable productivity gains.
(C) The workers buy products made by the firm that employs them.
(D) The workers prefer the new working practices over the old.
(E) The firm pays its workers at or above the industry's average.

Originally posted by qhoc0010 on 07 Jan 2005, 16:19.
Last edited by broall on 15 Mar 2018, 21:37, edited 1 time in total.
Director
Joined: 25 Jan 2004
Posts: 683
Location: Milwaukee
Re: If new working practices raise a firm s productivity, will  [#permalink]

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08 Jan 2005, 22:01
Arguement here is
In such a market the firm, to gain a competitive edge, will reduce prices.

The workersâ€™ real wages,purchasing power, will still rise because of lower prices.

That means workers can benifit from the price cuts only if they purchase products made from this company.

in this context,
choices B,D & E are out of context
Choice A is irrelavant. Hope this helps.
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Praveen

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Joined: 27 Dec 2004
Posts: 848
Re: If new working practices raise a firm s productivity, will  [#permalink]

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10 Jan 2005, 11:24
(C)
Same explanation PRaveen gave
Manager
Joined: 02 Dec 2004
Posts: 204
Re: If new working practices raise a firm s productivity, will  [#permalink]

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10 Jan 2005, 13:31
my choice is C

The only way the worker will gain without wage increase is by buying their company's products, which prices are going down.
Senior Manager
Joined: 26 Jun 2017
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Location: Russian Federation
Concentration: General Management, Strategy
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Re: If new working practices raise a firm s productivity, will  [#permalink]

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17 Nov 2018, 10:08
If new working practices raise a firm's productivity, will the firm respond by paying its workers more? Not in a competitive market. In such a market the firm, to gain a competitive edge, will reduce prices. The workers' real wages, as measured by those wages' purchasing power, will still rise because of lower prices.

In a competitive market which of the following, if true, ensures that the workers of a firm that achieved productivity gains will derive from these gains the benefit of higher real wages?

(A) The workers' firm continues to achieve productivity gains.
(B) Other firms do not achieve comparable productivity gains.
(C) The workers buy products made by the firm that employs them.
(D) The workers prefer the new working practices over the old.
(E) The firm pays its workers at or above the industry's average.
---------

I do not like this question at all. But the logic here is that in competitive market the firm will not play more to it's workers, so the wages of these workers will remain the same, But
the real wages will become higher if the workers buy the cheaper production.
So yes, it is only C.
Director
Joined: 20 Sep 2016
Posts: 552
Re: If new working practices raise a firm s productivity, will  [#permalink]

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18 Nov 2018, 02:44
No wonder GMAC dropped this one. Knowledge of purchasing power is somewhat too "business" .
Anyway :

Quote:
If new working practices raise a firm's productivity, will the firm respond by paying its workers more? Not in a competitive market. In such a market the firm, to gain a competitive edge, will reduce prices. The workers' real wages, as measured by those wages' purchasing power, will still rise because of lower prices.

Understand :
1) productivity increases > no salary increase.
2) company will reduce prices of products to stay competetive.
3) real wages = wasges' purchasing power (that means if for eg my salary is 100 \$ and i can afford two apples. (50\$ per apple ) ..Now my salary is still 100\$ but i can afford 5 apples ( 20\$ per apple .) SO basically my salary's power has increased. Initially with 100 i could buy 2 , but now i can buy 5 with same 100 so my 100 is much more powerful ) That is purchasing power .
4) Workers' real wages(salary's puchasing power) will rise.
Quote:
In a competitive market which of the following, if true, ensures that the workers of a firm that achieved productivity gains will derive from these gains the benefit of higher real wages?

-ASSUMPTION Question- Basicaly we want an Answer that will ensure( make us believe more) that THOUGH the salary is SAME, the salary's purchasin power will increase.

Think : The author says that even though the salary doesnt rise the purchasing power of that salary rises ?? how ?? He also says that company will reduce prices. Consider a comapny that charges 50 for 1 apple. My salary = 100 . so my purchasing power 2 ( 100 getting me 2 apples). But if comapny lowers is price to 20 , then my purchasing power has increased. to 5 ( 5 apples per 100) . But only if i buy that company's product.

Quote:
A) The workers' firm continues to achieve productivity gains.

- Does not tell us how the purchasing power will increase. Even if the productivity gains continues , we still do not know how gains are linked to increased purchasing power.

Quote:
(B) Other firms do not achieve comparable productivity gains.

-Even if other firms achieve comparable prices, the conclusion may still stand . At the end the workers are going to purchase a cheaper product.
does not breal the conclusion when negated.

Quote:
(C) The workers buy products made by the firm that employs them. - CORRECT

- Consider two companies A and B . A's apples = 50 \$ . B's aplles= 50\$ . workers work in company A and company A to be comapetetive lowers the price of the apple to 20 . Now my purchasing power will only increase if i purchsae A's product and not B's.

Quote:
(D) The workers prefer the new working practices over the old
.
- Workers' preference is not relevamt to purchasimg power

Quote:
(E) The firm pays its workers at or above the industry's average

- Paying prices at or above a par , does not help us. Evem of the firm pays wages below the par , the products' lower price may still be prosperous to the workers / may still get them atleast something more than the value they paid BEFORE .
Re: If new working practices raise a firm s productivity, will &nbs [#permalink] 18 Nov 2018, 02:44
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