At the beginning of 2004, Congress enacted a 15%

Question

At the beginning of 2004, Congress enacted a 15% increase in the federal minimum wage. At that time, Charlesville Hotdog and Beef Company employed 5,000 employees, with over 85 percent of the workforce making minimum wage. Despite the fact that the increase in minimum wage increased the operating expenses of Charlesville Co., the company reported record profits at the end of 2004.

Which of the following, if true, most helps to resolve the apparent paradox?

OE to follow

Which of the following, if true, most helps to resolve the apparent paradox?

(A) Charlesville Co. spends more money procuring cows for their Hotdog and Beef products than they do paying their 5,000 workers.
(B) Charlesville Co. also saw an increase in expenses other than its wages in 2004.
(C) Before 2004, the company had considered giving its employees a 15% raise, but ultimately decided not to do so.
(D) The company's customer base is made up primarily of families that rely on minimum wage incomes.
(E) The majority of the company's 5,000 employees work in the company's meat-packing facilities.

OE to follow

WillEconomistGMAT · Answer

Good question!

Hint: the correct answer is subtle here, so it might be easier to POE.

Abhishek009 · Answer

Good one to leave one bewildered for sometime..

Here goes my understanding -

1. Congress enacted a 15% increase in minimum wage

2. Charlesville Hotdog and Beef Company employed 5,000 employees, though most of it's employees were working above minimum wage.

3. Despite increase in Operating Expenses the Company's Profit Increased.

The Firms must have maximized its production to compensate for the hike in Operating Cost

Which of the following, if true, most helps to resolve the apparent paradox?

Paradox = How can an increase in Operating Costs ( Wages ) lead to record Profits

(A) Charlesville Co. spends more money procuring cows for their Hotdog and Beef products than they do paying their 5,000 workers.

This action will increase the operating costs further.

(B) Charlesville Co. also saw an increase in expenses other than its wages in 2004.

Increase in Operating Costs

(C) Before 2004, the company had considered giving its employees a 15% raise, but ultimately decided not to do so.

Out of Scope

(D) The company's customer base is made up  primarily of families that rely on minimum wage incomes.

If the Customer's income increases they will purchase more and thus the rise in Operating Expenses can be distributed evenly on a broader number of Products sold and thereby increasing the profits.

(E) The majority of the company's 5,000 employees work in the company's meat-packing facilities.

Its not clear how this is resulting in Profits from sales from this statement.

avohden · Answer

Official Explanation

Answer D   - In the stimulus, we are told that Charlesville's profits increased markedly in 2004 despite the fact that an increase in the federal minimum wage increased the company's cost structure. In order to find a proper explanation to this apparent paradox, we must find an answer choice that allows us to show that Charlesville could have also enjoyed a simultaneous increase in revenue.  Only choice (D) does this. It says that the customer base of Charlesville was newly flush with cash because of the increase in the federal minimum wage. Despite the company's higher costs, the change in the minimum wage would also have allowed for greater demand of the company's products.

Choice (A) may have been tempting for many students. However this choice only states that employee wages represent a minority of the company's costs. While this could mean that a decline in cow prices would offset the increase in wages, the statement does not go so far as to actually say that. It also does not contradict the evidence given to us that the company's operating expenses did indeed go up.

Choice (B) only further fuels the apparent paradox. If all expenses went up and profits went up, then only an increase in revenue could account for the higher profits.

Choices (C) and (E) are irrelevant. Neither the consideration of a raise prior 2004, nor the fact that most of the employees work in meat packing helps to explain the apparent paradox.

yenpham9 · Answer

(A) Charlesville Co. spends more money procuring cows for their Hotdog and Beef products than they do paying their 5,000 workers.  This does not explain the profits at the end of 2004 (B) Charlesville Co. also saw an increase in expenses other than its wages in 2004.
(C) Before 2004, the company had considered giving its employees a 15% raise, but ultimately decided not to do so. Same as A.
(D) The company's customer base is made up primarily of families that rely on minimum wage incomes. Customer increases salary (minimum wage increases)==> pay more==> profits increases
(E) The majority of the company's 5,000 employees work in the company's meat-packing facilities.  Irrelevant. 
Hope this helps!

VerbalBot · Answer

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At the beginning of 2004, Congress enacted a 15%

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At the beginning of 2004, Congress enacted a 15%

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