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# New OG 2016:Coffee shop owner: A large number of customers will pay at

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New OG 2016:Coffee shop owner: A large number of customers will pay at  [#permalink]

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Updated on: 20 Jun 2018, 06:45
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79% (01:22) correct 21% (01:36) wrong based on 1885 sessions

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Coffee shop owner: A large number of customers will pay at least the fair market value for a cup of coffee, even if there is no formal charge. Some will pay more than this out of appreciation of the trust that is placed in them. And our total number of customers is likely to increase. We could therefore improve our net cash flow by implementing an honor system in which customers pay what they wish for coffee by depositing money in a can.

Manager: We're likely to lose money on this plan. Many customers would cheat the system, paying a very small sum or nothing at all.

Which of the following, if true, would best support the owner’s plan, in light of the manager’s concern?

(A) The new system if implemented, would increase the number of customers.

(B) By roasting its own coffee, the shop has managed to reduce the difficulties and cost of maintaining an inventory of freshly roasted coffee.

(C) Many customers stay in the cafe for long stretches of time.

(D) The shop makes a substantial proﬁt from pastries and other food bought by the coffee drinkers.

(E) No other coffee shop in the area has such a system.

Originally posted by WillGetIt on 03 Jul 2015, 10:55.
Last edited by Bunuel on 20 Jun 2018, 06:45, edited 2 times in total.
Formatted the question.
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Re: New OG 2016:Coffee shop owner: A large number of customers will pay at  [#permalink]

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04 Jul 2015, 07:13
5
1
Owners Premise - Coffee drinkers would pay the fair value for the coffee and the number of customers is likely to increase
Conclusion - Netcashflow will increase.
Manager Premise - Coffee drinkers will cheat and pay a small amount for the coffee.

We have to strengthen the Conclusion of the owners argument - that is cashflow is going to increase because of the plan he proposes.
It is possible that the owners plan works - that is coffee drinkers play a fair value for the coffee or even more and in that case the cashflow would increase.
It is also possible that coffee drinkers cheat as the manager suggests but even if that happens it is possible that the net cashflow of the coffee shop increases as a result of this plan in any possible way. If any answer choice can show this then that strengthens the owners conclusion.

(A) The new system. it implemented, would increase the number of customers.
-> Even if the number of customers increase it is possible that the customers cheat and hence netcashflow could go down.

(B) By roasting its own coffee, the shop has managed ho reduce the difficulties and cost of maintaining an inventory of freshly roasted coffee.
-> This choice does not affect the conclusion in any way.

(C) Many customers stay in the cafe for long stretches of time.
-> This choice does not affect the conclusion in any way. Even if they stay long that in no way suggests that cashflow would go up. If more people stay in coffee shop that actually pay less than market place the cashflow could even decrease further.

(D) The shop makes a substantial proﬁt from pastries and other food bought by the coffee drinkers.
-> Hmm , this answer choice gives a reason as to why the cashflow could actually go up. If coffee drinkers eat other food from the coffee shop then that can actually increase the cashflow of the coffee shop.

(E) No other coffee shop in the area has such a system.
-> This choice does not affect the conclusion in any way.
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Re: New OG 2016:Coffee shop owner: A large number of customers will pay at  [#permalink]

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03 Jul 2015, 11:43
2
Everytime i read an official question, my respect for the test makers go up several folds.
The issue at hand is: no charge for coffee. Customers can drink coffee and pay as much as they wish. Owner asserts people will be fair and pay at least the amount rightly deserved. But manager says people may end up taking undue advantage.
Now, what if coffee is free but the coffee shop makes substantial profit from the delicatessens? It is also said #of customers will go up so the profit from pastries will also go up and so revenue will go up.
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Re: New OG 2016:Coffee shop owner: A large number of customers will pay at  [#permalink]

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18 Jul 2015, 09:11
this indeed is a lovely question, i had think twice before choosing D; simple yet interesting.
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Re: New OG 2016:Coffee shop owner: A large number of customers will pay at  [#permalink]

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20 Jul 2015, 17:46
4
Coffee shop owner: A large number of customers will pay at least the fair market value for a cup of coffee, even
if there is no formal charge. Some will pay more than this out oi appreciation of the trust that is placed in them.
And our total number of customers is likely to increase. We could therefore improve our net cash ﬂow by
implementing an honor system in which customers pay what they wish for coffee by depositing money in a can.
Manager: We're likely to lose money on this plan. Many customers would cheat the system, paying a very small
sum or nothing at all.

Argument Analysis :
Owner : No price tag, let customer pay what they want. Large number of Customer will pay fair price. Total customer base will increase, improving net cash flow.
Manager : Customer will cheat, leading to losses.

What can best support Owner's argument, if manager is true.
Pre thinking :
1. If Customer base increases hugely and Proportion of cheater is negligible.
2. If Customer buy something else along with coffee, and the price of add on stuff compensate the free tag of coffee.

POE.

(A) The new system. it implemented, would increase the number oi customers.
ISWAT - (Most attractive) - Agreed that it will increase customer, but what if high proportion of customers don't pay. So store will end in losses - Incorrect.

(B) By roasting its own coﬂee, the shop has managed ho reduce the difficulties and cost of maintaining an
inventory of freshly roasted coffee.
Out of Scope - This knowledge of roasting expense and it's impact on Revenue has not been shared with us. also, it no where connects to the plan shared in argument. So out of scope - Incorrect

(C) Many customers stay in the cafe for long stretches of time.
out of scope - Correlation between period of stay and Income from stay of customer is not discussed in argument. Hence out of scope - Incorrect.

(D) The shop makes a substantial proﬁt from pastries and other food bought by the coffee drinkers.
Correct - If customer buys Sides along with coffee and those side dishes makes nice profit, then it will compensate price tag free coffee. Also due to shop's plan, Customer intake will increase, and hence sales of sides will increase, Increasing profit.

(E) No other coffee shop in the area has such a system.
out of scope - Other shop may not have it, but this does not prove that shop will make profit.

option D is correct
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Re: New OG 2016:Coffee shop owner: A large number of customers will pay at  [#permalink]

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21 Jul 2015, 05:31
1
Coffee shop owner: A large number of customers will pay at least the fair market value for a cup of coffee, even
if there is no formal charge. Some will pay more than this out of appreciation of the trust that is placed in them.
And our total number of customers is likely to increase. We could therefore improve our net cash ﬂow by
implementing an honor system in which customers pay what they wish for coffee by depositing money in a can.
Manager: We're likely to lose money on this plan. Many customers would cheat the system, paying a very small
sum or nothing at all.

Which of the following, if true, would best support the owner's plan, in light of the manager's concern?
The manager's concern is that they will lose money because the customers will cheat. The correct choice addresses this issue. Look for an answer choice that shows that the customers will continue to pay somehow and the cafe won't lose money.

(A) The new system. if implemented, would increase the number of customers.
An increase in customers could mean an increase in customers who don't pay.
(B) By roasting its own coffee, the shop has managed to reduce the difficulties and cost of maintaining an
inventory of freshly roasted coffee.
The difficulties and cost of maintaining freshly roasted coffee are not relevant.
(C) Many customers stay in the cafe for long stretches of time.
The time that customers stay in the cafe is not relevant. They can stay but not spend.
(D) The shop makes a substantial proﬁt from pastries and other food bought by the coffee drinkers.
This shows that even if the customers cheat on the coffee cost the cafe receives profit from pastries and other food.
(E) No other coffee shop in the area has such a system.
Whether or not it's a unique system is not relevant.
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Re: New OG 2016:Coffee shop owner: A large number of customers will pay at  [#permalink]

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04 Oct 2016, 02:32
D is the correct choice.

As main source of income for shop is not coffee. If honor system is implement on coffee still it is not going to suffer loss.
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Re: New OG 2016:Coffee shop owner: A large number of customers will pay at  [#permalink]

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13 Sep 2017, 05:44
Coffee shop owner says that the customers are likely to increase due to fair price. A customer can pay as much for coffee as he want.
Manager : Customers can take undue advantage of this.

What if the profit of the coffee shop comes significantly from the other food items like the cakes, deserts and other delicacies.
Option D holds a strong support for the owner and hence the answer.
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Re: New OG 2016:Coffee shop owner: A large number of customers will pay at  [#permalink]

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30 Oct 2017, 05:43
I'm not so sure about this question. I chose B, as it directly affects the cost of the coffee- lower costs=more profit, assuming revenue stays the same (if customers pay the same or more, as the manager describes, profits will increase).

Answer (D): The shop makes a substantial pro???t from pastries and other food bought by the coffee drinkers. How does this affect the conclusion of being more profitable? People may already be buying sides...
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Re: New OG 2016:Coffee shop owner: A large number of customers will pay at  [#permalink]

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09 Nov 2017, 16:39
Quote:
Coffee shop owner: A large number of customers will pay at least the fair market value for a cup of coffee, even if there is no formal charge. Some will pay more than this out of appreciation of the trust that is placed in them. And our total number of customers is likely to increase. We could therefore improve our net cash flow by implementing an honor system in which customers pay what they wish for coffee by depositing money in a can.

Manager: We're likely to lose money on this plan. Many customers would cheat the system, paying a very small sum or nothing at all.

Which of the following, if true, would best support the owner’s plan, in light of the manager’s concern?

(A) The new system if implemented, would increase the number of customers.

(B) By roasting its own coffee, the shop has managed to reduce the difficulties and cost of maintaining an
inventory of freshly roasted coffee.

(C) Many customers stay in the cafe for long stretches of time.

(D) The shop makes a substantial proﬁt from pastries and other food bought by the coffee drinkers.

(E) No other coffee shop in the area has such a system.

okay wrote:
I'm not so sure about this question. I chose B, as it directly affects the cost of the coffee- lower costs=more profit, assuming revenue stays the same (if customers pay the same or more, as the manager describes, profits will increase).

Answer (D): The shop makes a substantial pro???t from pastries and other food bought by the coffee drinkers. How does this affect the conclusion of being more profitable? People may already be buying sides...

According to the coffee shop owner, implementing an honor system would increase the total number of customers, and the manager does not dispute this claim. However, the manager believes that "many customers would cheat the system, paying a very small sum or nothing at all." In other words, the manager says, "Who cares if we increase the total number of customers? If many of them pay a small sum or nothing at all, we will probably lose money."

Choice (D) addresses the manager's concern by saying, "Yes, we might lose some money on coffee, but by increasing the total number of customers, we will increase the amount of food/pastries that we sell. Since we make a substantial profit selling food/pastries, those profits will make up for the relatively small amount of money we might lose on coffee."

Choice (B) tells us that the shop has been able to save some money by roasting its own coffee, but it does not address the managers concern. Even if they have a cheaper way to make coffee, if many people are paying little or nothing for the coffee, the shop would still likely lose money on coffee.

Choice (D) is the best answer because it directly addresses the manager's concern.

I hope that helps!
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Re: New OG 2016:Coffee shop owner: A large number of customers will pay at  [#permalink]

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10 Nov 2017, 04:46
GMATNinja wrote:
Quote:
Coffee shop owner: A large number of customers will pay at least the fair market value for a cup of coffee, even if there is no formal charge. Some will pay more than this out of appreciation of the trust that is placed in them. And our total number of customers is likely to increase. We could therefore improve our net cash flow by implementing an honor system in which customers pay what they wish for coffee by depositing money in a can.

Manager: We're likely to lose money on this plan. Many customers would cheat the system, paying a very small sum or nothing at all.

Which of the following, if true, would best support the owner’s plan, in light of the manager’s concern?

(A) The new system if implemented, would increase the number of customers.

(B) By roasting its own coffee, the shop has managed to reduce the difficulties and cost of maintaining an
inventory of freshly roasted coffee.

(C) Many customers stay in the cafe for long stretches of time.

(D) The shop makes a substantial proﬁt from pastries and other food bought by the coffee drinkers.

(E) No other coffee shop in the area has such a system.

Choice (D) is the best answer because it directly addresses the manager's concern.

I hope that helps!

GMATNinja, mikemcgarry
I chose A because i did not read option D properly. I stopped at pastries thinking pastries are not relevant to the discussion.

My concern is that is option A incorrect because its a repetition of the premise or because it doesn't directly address the manager's concern.
(The premise says the customers are LIKELY to increase whereas the answer option says they WOULD increase)

Thanks
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Re: New OG 2016:Coffee shop owner: A large number of customers will pay at  [#permalink]

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17 Nov 2017, 13:20
KGump wrote:
GMATNinja, mikemcgarry
I chose A because i did not read option D properly. I stopped at pastries thinking pastries are not relevant to the discussion.

My concern is that is option A incorrect because its a repetition of the premise or because it doesn't directly address the manager's concern.
(The premise says the customers are LIKELY to increase whereas the answer option says they WOULD increase)

Thanks

The owner says that the "total number of customers is likely to increase." Choice (A) then strengthens the owner's position by saying that the number of customers WILL increase. However, this does not address the manager's concern. Even if choice (A) is true, the manager would say, "Who cares if we increase the total number of customers? If many of them pay a small sum or nothing at all, we will probably lose money."

As described below, only choice (D) addresses the manager's concern.
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Re: New OG 2016:Coffee shop owner: A large number of customers will pay at  [#permalink]

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28 Jan 2018, 04:42
Hi GMATNinjaTwo GMATNinja

I too fell for (B) trap at first glance.
In a practical market situation, will reducing inventory cost help in improving productivity
ie no of coffee served if not contribute to increase in net cash flow ie profit?
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Re: New OG 2016:Coffee shop owner: A large number of customers will pay at  [#permalink]

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05 Feb 2018, 22:17
Hi GMATNinjaTwo GMATNinja

I too fell for (B) trap at first glance.
In a practical market situation, will reducing inventory cost help in improving productivity
ie no of coffee served if not contribute to increase in net cash flow ie profit?

All else equal, if a store reduces its costs, then that would obviously improve its profits.

But this is something that the coffee shop has already done ("the shop has managed to reduce the difficulties and cost..."). In other words, this change has already been implemented and has nothing to do with the owner's plan.

Choice (B) describes a way that the shop has saved money, but if the shop implements an honor system and customers start paying little or nothing (i.e. decreased revenues), then the shop could lose money.

We need something that supports the owner's plan IN LIGHT OF the manager's concern. As described in this post, only choice (D) addresses the manager's concern.
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Re: New OG 2016:Coffee shop owner: A large number of customers will pay at  [#permalink]

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08 Apr 2018, 06:29
GMATNinja wrote:
Hi GMATNinjaTwo GMATNinja

I too fell for (B) trap at first glance.
In a practical market situation, will reducing inventory cost help in improving productivity
ie no of coffee served if not contribute to increase in net cash flow ie profit?

All else equal, if a store reduces its costs, then that would obviously improve its profits.

But this is something that the coffee shop has already done ("the shop has managed to reduce the difficulties and cost..."). In other words, this change has already been implemented and has nothing to do with the owner's plan.

Choice (B) describes a way that the shop has saved money, but if the shop implements an honor system and customers start paying little or nothing (i.e. decreased revenues), then the shop could lose money.

We need something that supports the owner's plan IN LIGHT OF the manager's concern. As described in this post, only choice (D) addresses the manager's concern.

GMATNinja
net cash flow:
does it mean profit or revenue?
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Re: New OG 2016:Coffee shop owner: A large number of customers will pay at  [#permalink]

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08 Apr 2018, 07:40
1
JAIN09 wrote:
GMATNinja wrote:
Hi GMATNinjaTwo GMATNinja

I too fell for (B) trap at first glance.
In a practical market situation, will reducing inventory cost help in improving productivity
ie no of coffee served if not contribute to increase in net cash flow ie profit?

All else equal, if a store reduces its costs, then that would obviously improve its profits.

But this is something that the coffee shop has already done ("the shop has managed to reduce the difficulties and cost..."). In other words, this change has already been implemented and has nothing to do with the owner's plan.

Choice (B) describes a way that the shop has saved money, but if the shop implements an honor system and customers start paying little or nothing (i.e. decreased revenues), then the shop could lose money.

We need something that supports the owner's plan IN LIGHT OF the manager's concern. As described in this post, only choice (D) addresses the manager's concern.

GMATNinja
net cash flow:
does it mean profit or revenue?

Net cash flow is more like profit than revenue (though "net cash flow" and "profits" are two different things). But don't overthink the financial definitions here...

Let's say the coffee shop currently averages \$1,000/day in coffee sales. Keep all other variables equal and imagine that they implement an honor system. If people cheat the system and only pay \$800 for the same amount of coffee, then net cash flow will decrease. If, instead, people pay more than \$1,000 "out of appreciation of the trust that is placed in them," then net cash flow will be improved.

In other words, for this example, an increase in revenue presumably increases both profits and net cash flow.
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Re: New OG 2016:Coffee shop owner: A large number of customers will pay at  [#permalink]

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14 Apr 2018, 07:46
I am confused about this question. Even if D can help improve the profit, it has nothing to do with implementing the honor system. The owner said the customer base is like to increase, but didn't say it will increase because of the honor system. So increasing customer base is a fact and has nothing to do with the honor system. How could D make sense here?
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Re: New OG 2016:Coffee shop owner: A large number of customers will pay at  [#permalink]

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15 Apr 2018, 11:03
yliu wrote:
I am confused about this question. Even if D can help improve the profit, it has nothing to do with implementing the honor system. The owner said the customer base is like to increase, but didn't say it will increase because of the honor system. So increasing customer base is a fact and has nothing to do with the honor system. How could D make sense here?

yliu, try reviewing this post. The idea is that implementing the honor system will increase the number of customers. Whether this results in an increase or decrease in coffee profits is largely irrelevant. Why? Because if we increase the number of customers (by implementing the honor system), the shop will increase its profits from sales of pastries and other food.
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