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

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Intern
Joined: 08 Aug 2016
Posts: 37

Kudos [?]: 10 [0], given: 58

Re: In order to increase revenues, a cell-phone company has [#permalink]

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22 Nov 2016, 06:43
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? Kudos [?]: 10 [0], given: 58 Verbal Expert Joined: 14 Dec 2013 Posts: 3227 Kudos [?]: 3639 [0], given: 22 Location: Germany Schools: HHL Leipzig GMAT 1: 780 Q50 V47 WE: Corporate Finance (Pharmaceuticals and Biotech) Re: In order to increase revenues, a cell-phone company has [#permalink] ### Show Tags 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.

Kudos [?]: 3639 [0], given: 22

Verbal Expert
Joined: 14 Dec 2013
Posts: 3227

Kudos [?]: 3639 [0], given: 22

Location: Germany
Schools: HHL Leipzig
GMAT 1: 780 Q50 V47
WE: Corporate Finance (Pharmaceuticals and Biotech)
In order to increase revenues, a cell-phone company has [#permalink]

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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 ?

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.

Kudos [?]: 3639 [0], given: 22

Senior Manager
Joined: 02 Apr 2014
Posts: 263

Kudos [?]: 18 [0], given: 499

Re: In order to increase revenues, a cell-phone company has [#permalink]

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09 Nov 2017, 02:59
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. Kudos [?]: 18 [0], given: 499 Manager Joined: 07 Jun 2015 Posts: 87 Kudos [?]: 8 [0], given: 9 WE: Design (Aerospace and Defense) Re: In order to increase revenues, a cell-phone company has [#permalink] ### Show Tags 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? Kudos [?]: 8 [0], given: 9 Intern Joined: 29 Jan 2017 Posts: 4 Kudos [?]: 0 [0], given: 49 Re: In order to increase revenues, a cell-phone company has [#permalink] ### Show Tags 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. [Reveal] Spoiler: 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?? Experts Please help..!!! 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?

Kudos [?]: 0 [0], given: 49

Re: In order to increase revenues, a cell-phone company has   [#permalink] 02 Dec 2017, 01:51

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