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# In order to increase revenues, a cell-phone company has

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Retired Moderator
Joined: 14 Dec 2013
Posts: 2946
Location: Germany
Schools: German MBA
GMAT 1: 780 Q50 V47
WE: Corporate Finance (Pharmaceuticals and Biotech)
Re: In order to increase revenues, a cell-phone company has  [#permalink]

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22 Nov 2016, 07:41
chismooo wrote:
Assumptions: Usage will not change
Market situation will not change (competitors etc.)
No other event affecting costs will happen

A) A rival-company , which charges no start-up fee , offers an unlimited calling plan for $40 per month. It seems out of topic, since the argument is about the company and its own budgeting structure. Still keep it. B) Two-thirds of the company's customers use less than 500 minutes per month. strengthen, if we assume that usage data will not change C) Studies have shown that customers using unlimited calling plans will increase their monthly usage of minutes by over 50 percent. Aha! attacks to the assumption. Weaken D) One-fifth of the company's customers use in excess of 1,000 minutes per month. We don't know what is 1/5th of customers. maybe 4/5 th of customers limit their usage by 200 (strengthen the argument) or maybe they are using 900min. (weaken the argument) E) In recent months the company has received several complaints of insufficient signal strength and poor customer service. Out of Scope Both A and C attacks assumptions. However, A seems out of scope since the company again decrease the prices and get all the customers of the competitor. However, C directly attacks to the assumption considering the increase of costs (maybe infrastructural needs to handle the over usage etc) due to increase of over usage Am I wrong? Option A: The argument is about the revenue of the company, not the profit. If the company offers$50 per month and the competitor offers $40 a month, customers will go to the competitor; they would not buy from the company. So the revenue of the company will decrease. Option A is correct. Option C: Customer usage increases implies that the cost to the company will increase, i.e. the profits will decrease, but the argument is not about profits, it is about revenue. Hence option C is incorrect. Retired Moderator Joined: 14 Dec 2013 Posts: 2946 Location: Germany Schools: German MBA GMAT 1: 780 Q50 V47 WE: Corporate Finance (Pharmaceuticals and Biotech) In order to increase revenues, a cell-phone company has [#permalink] ### Show Tags 25 Dec 2016, 19:25 prakashgmat2016 wrote: Hi Sayan, I am getting both B and D as my answer. But the answer which is given for this Question is A. I am really surprised to see A as the answer. A can possibly be a correct answer for strengthen and weakening question but it can't be correct for this. But to me this question is more of INFERENCE type question. Isn't it ? Could you please help me in understanding why B and D are wrong and A is correct? For A to be correct we need to make lot of assumptions Can we make assumptions on such questions ? Your first query: This is a weakening question, not an inference question. The conclusion is: In order to increase revenues, a cell-phone company has decided to change its fee structure. The question is that why the plan may not succeed or in other other words, why the conclusion could be wrong? This is a common structure weakening question. Your second query: Please read this: in-order-to-increase-revenues-a-cell-phone-company-has-153147.html#p1756331 Senior Manager Joined: 02 Apr 2014 Posts: 473 GMAT 1: 700 Q50 V34 Re: In order to increase revenues, a cell-phone company has [#permalink] ### Show Tags 09 Nov 2017, 02:59 1 I fell for D, making calculations based on 100 present consumers , $$1/5$$ th use in excess of 1000 minutes leading to revenue loss. But most important part we are forgetting is that, we put into calculations only the present consumers, what if the company will be able to attract more people to the plan and offset the loss above.? We never know. Option A, captures these future consumers by offering 40$ per month unlimited option. Obviously, future consumers will be attracted to rival company. And it stands best choice.
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Re: In order to increase revenues, a cell-phone company has  [#permalink]

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12 Nov 2017, 09:53
D) One-fifth of the company's customers use in excess of 1,000 minutes per month.

Assume there are 10 customers.
Revenue from old plan(assuming 1/5th people used 1000 hrs)= 10*20+ (1/5*10)(1000-200)*0.5=200+800=1000
Revenue from new plan=10*50=500

sayantanc2k considering B ,is it not very clear that revenue as per new plan is less than revenue as per old plan?
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Re: In order to increase revenues, a cell-phone company has  [#permalink]

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02 Dec 2017, 01:51
RatneshS wrote:
jaituteja wrote:
ruplun wrote:
In order to increase revenues, a cell-phone company has decided to change its fee structure.Instead of charging a flat rate of $20 per month and$0.50 for every minute over 200 minutes, the company will now charge $50 per month for unlimited usage. Which of the following is a consideration that, if true, suggests that the new plan will not actually increase the company's revenues? A) A rival-company , which charges no start-up fee , offers an unlimited calling plan for$40 per month.
B) Two-thirds of the company's customers use less than 500 minutes per month.
C) Studies have shown that customers using unlimited calling plans will increase their monthly usage of minutes by over 50 percent.
D) One-fifth of the company's customers use in excess of 1,000 minutes per month.
E) In recent months the company has received several complaints of insufficient signal strength and poor customer service.
how to come to conclusion of the solution to be a).I choose B. But according to the solution , the answer is a. and Why?

Source: Mc-Graw Hill's

A) A rival-company , which charges no start-up fee , offers an unlimited calling plan for $40 per month. Competition from rivals is not a concern. We are asked how new plan will not increase company's revvenues. B) Two-thirds of the company's customers use less than 500 minutes per month. Suppose, we have 99 customers. Older PLan: 2/3 of 99 => 66 people use less than 500 min/month. To minimize the plan's value, lets assume these 66 people make less than 200 min/month. Now, they will be charged 66* 20$ => 1320$Remaining 33 people, lets assume they make 500min/month. they will be charge 33*20$ + 33*0.5*300 => 660 + 4950 => 5610$total revenues for Older plan => 1320 + 5610 => 6930$

REMEMBER, this is the minimal cost.
New plan: 50$per person 50*99 => 4950$

Thus plan B is not effective. CORRECT

C) Studies have shown that customers using unlimited calling plans will increase their monthly usage of minutes by over 50 percent.
This will show the new plan will be more effective than expected.

D) One-fifth of the company's customers use in excess of 1,000 minutes per month.
This can also be calculated as per B. and will hold true.

E) In recent months the company has received several complaints of insufficient signal strength and poor customer service.

Out of Scope.

I am confused b/w B and D, however i am more confused how A is correct??

Thanks,
Jai

B is not correct because
Case Before: cost to customers = $20 + .50(x-200) {because 200 minutes are free and we are charged over 200 minutes} 1>so if customer talks for 500 minutes cost= 20+ .50(500-200)= 20+ 150= 170$
2> if customer talks for 200 minutes
cost= 20+ .50(200-200)=20$Case after: customer has to pay 50$

so we can conclude that plan may or may not be favourable to customer depending on his minutes usage( 170$VS 50$)

D can be equated thae same as is B

can you mathematically explain how d is wrong?
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Re: In order to increase revenues, a cell-phone company has  [#permalink]

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07 Feb 2018, 01:47
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Joined: 05 Sep 2016
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Re: In order to increase revenues, a cell-phone company has  [#permalink]

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07 Feb 2018, 01:49
ruplun wrote:
In order to increase revenues, a cell-phone company has decided to change its fee structure.Instead of charging a flat rate of $20 per month and$0.50 for every minute over 200 minutes, the company will now charge $50 per month for unlimited usage. Which of the following is a consideration that, if true, suggests that the new plan will not actually increase the company's revenues? A) A rival-company , which charges no start-up fee , offers an unlimited calling plan for$40 per month.
B) Two-thirds of the company's customers use less than 500 minutes per month.
C) Studies have shown that customers using unlimited calling plans will increase their monthly usage of minutes by over 50 percent.
D) One-fifth of the company's customers use in excess of 1,000 minutes per month.
E) In recent months the company has received several complaints of insufficient signal strength and poor customer service.
how to come to conclusion of the solution to be a).I choose B. But according to the solution , the answer is a. and Why?

Source: Mc-Graw Hill's

I am not able to understand how B and D are out of scope and A is correct?? Humble request to experts to give proper explanation.
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Joined: 20 Dec 2015
Posts: 1055
Location: India
Concentration: Operations, Marketing
GMAT 1: 670 Q48 V36
GRE 1: Q157 V157
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In order to increase revenues, a cell-phone company has  [#permalink]

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Updated on: 07 Feb 2018, 07:10
ruplun wrote:
In order to increase revenues, a cell-phone company has decided to change its fee structure.Instead of charging a flat rate of $20 per month and$0.50 for every minute over 200 minutes, the company will now charge $50 per month for unlimited usage. Which of the following is a consideration that, if true, suggests that the new plan will not actually increase the company's revenues? A) A rival-company , which charges no start-up fee , offers an unlimited calling plan for$40 per month.
B) Two-thirds of the company's customers use less than 500 minutes per month.
C) Studies have shown that customers using unlimited calling plans will increase their monthly usage of minutes by over 50 percent.
D) One-fifth of the company's customers use in excess of 1,000 minutes per month.
E) In recent months the company has received several complaints of insufficient signal strength and poor customer service.
how to come to conclusion of the solution to be a).I choose B. But according to the solution , the answer is a. and Why?

Source: Mc-Graw Hill's

Good question
Now what will give us reason to believe that the plan to change fee structure to charge 50 dollars for unlimited usage will not work .
A clearly gives us that reason as it tells us that a rival company already is giving the same plan for 40 dollars then people will surely opt for the cheaper service.
B is actually very hazy it does not give us any information about the actual break up of customers.
C suppose majority of the customers use 50 minutes then after the new plan they will consume 75 minutes then the consumers will be at loss they may choose different service provider.
D Again same type of reasoning as used in C
E Out of scope.
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Originally posted by arvind910619 on 07 Feb 2018, 07:06.
Last edited by arvind910619 on 07 Feb 2018, 07:10, edited 1 time in total.
VP
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GMAT 1: 670 Q48 V36
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Re: In order to increase revenues, a cell-phone company has  [#permalink]

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07 Feb 2018, 07:09
Sankalp92 wrote:
ruplun wrote:
In order to increase revenues, a cell-phone company has decided to change its fee structure.Instead of charging a flat rate of $20 per month and$0.50 for every minute over 200 minutes, the company will now charge $50 per month for unlimited usage. Which of the following is a consideration that, if true, suggests that the new plan will not actually increase the company's revenues? A) A rival-company , which charges no start-up fee , offers an unlimited calling plan for$40 per month.
B) Two-thirds of the company's customers use less than 500 minutes per month.
C) Studies have shown that customers using unlimited calling plans will increase their monthly usage of minutes by over 50 percent.
D) One-fifth of the company's customers use in excess of 1,000 minutes per month.
E) In recent months the company has received several complaints of insufficient signal strength and poor customer service.
how to come to conclusion of the solution to be a).I choose B. But according to the solution , the answer is a. and Why?

Source: Mc-Graw Hill's

I am not able to understand how B and D are out of scope and A is correct?? Humble request to experts to give proper explanation.

Hi ,
We dont know the actual break up of the customers so we can not infer anything .
if majority of the people are use 100 minutes then they are at loss due to new plan . They might switch service .
D also uses same type of reasoning.
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Re: In order to increase revenues, a cell-phone company has  [#permalink]

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22 Oct 2018, 22:33
1
GMATNinja sayantanc2k ... i have a question

when a plan is mentioned in the argument and we are asked to evaluate the success of the plan , another competing plan employed by someone else can weaken the success? when is it should we just focus on the specific plan>?
is it when we are asked about the efficiency or viabilty of the plan?
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Joined: 04 Dec 2015
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Re: In order to increase revenues, a cell-phone company has  [#permalink]

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23 Oct 2018, 10:54
I have gone through the discussion. I am still not convinced with option a. I understand the logic behind it being the correct answer, but it still seems out of scope.

Posted from my mobile device
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Joined: 10 Oct 2017
Posts: 13
In order to increase revenues, a cell-phone company has  [#permalink]

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24 Oct 2018, 01:21
Moreover, if we consider

A) A rival-company , which charges no start-up fee , offers an unlimited calling plan for $40 per month. (A) can also argued to be true, as, if the above is true then the rival company will attract all the customers of the company charging$50 thus undermining the latter's revenue and not causing an increase in revenues.

Hi buddy,
Just because rival company reduces fee doesn't necessarily mean customers will move away from the current network.

Just imagine a case where the customers prefer other factors like good network coverage or good customer service, which may be available in the existing network. In such a scenario, customers are unlikely to move to a new network rather stay with the current operator paying extra.

I vote against Option A.

I m still pondering between B and D. Both are seemingly sound options.

Hope my assumption is rational .
In order to increase revenues, a cell-phone company has &nbs [#permalink] 24 Oct 2018, 01:21

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