Thousands of people work at G. Handy's, an inexpensive fast-food resta

Question

Thousands of people work at G. Handy's, an inexpensive fast-food restaurant chain that pays most of its employees minimum wage. Even though new laws forced an increase in the minimum wage, and thus substantially raised the restaurant chain's labor costs, its profits also rose substantially.

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

A Only a very small part of the 70 percent of operating expenses paid by the restaurant chain for employee compensation goes to pay managers.

B People who earn minimum wage, or who rely on the earnings of others who do, comprise most of the restaurant chain’s customer base.

C Other expenses of the restaurant chain rose dramatically after the wage hike, for reasons unrelated to the minimum wage raise.

D The restaurant chain decided to increase wages for managerial employees who were making slightly more than minimum wage simultaneously with the minimum wage increase.

E Cashiers and cooks, who are usually paid minimum wage, comprise most of the staff at the restaurant chain.

Aham56 · Answer

G.Handy's labour costs have increased substantially because of laws forcing an increase in the minimum wage which they pay most of its employees. Yet, their profits have increased. This can be true if either other non-labour costs have decreased more than the increase in employment costs and/or if revenues have increased to offset the increase in employment costs.

A Only a very small part of the 70 percent of operating expenses paid by the restaurant chain for employee compensation goes to pay managers.
 This does not help answer the question as employment costs could still have gone up by paying managerial employees

B People who earn minimum wage, or who rely on the earnings of others who do, comprise most of the restaurant chain’s customer base.
 This could possibly explain why the revenue could have increased. Customers have more money to spend at the restaurant with their increased earnings on themselves or their children

C Other expenses of the restaurant chain rose dramatically after the wage hike, for reasons unrelated to the minimum wage raise.
 This would decrease the profit and hence cannot explain why the profits rose

D The restaurant chain decided to increase wages for managerial employees who were making slightly more than minimum wage simultaneously with the minimum wage increase.
 Like C, this would decrease the profit

E Cashiers and cooks, who are usually paid minimum wage, comprise most of the staff at the restaurant chain.
 Does not explain why the profit would raise and this just provides an explanation for the cost increase

Leaves us with B to explain the paradox. The revenue is going up because the majority of the restaurant's customers is on a minimum wage and can spend more money there.

ElninoEffect · Answer

A Only a very small part of the 70 percent of operating expenses paid by the restaurant chain for employee compensation goes to pay managers.
 How the increase in pay was distributed is not in question here. + It is not helping in resolving the paradox in any case.

B People who earn minimum wage, or who rely on the earnings of others who do, comprise most of the restaurant chain’s customer base.
 If that's the condition then increase in wage will lead to increase in consumption hence increase in profit. Perfectly explains the paradox.

C Other expenses of the restaurant chain rose dramatically after the wage hike, for reasons unrelated to the minimum wage raise.
 It is supporting the point that increase in pay was also accompanied by rise in other expenses also but it is still failing to explain the increase in the profit portion.

D The restaurant chain decided to increase wages for managerial employees who were making slightly more than minimum wage simultaneously with the minimum wage increase.
 Same as A.

E Cashiers and cooks, who are usually paid minimum wage, comprise most of the staff at the restaurant chain.
 Same as A.

mSKR · Answer

A Only a very small part of the 70 percent of operating expenses paid by the restaurant chain for employee compensation goes to pay managers.
>>only exlplains why cost increases

B People who earn minimum wage, or who rely on the earnings of others who do, comprise most of the restaurant chain’s customer base. 
>>exlplains why cost increases + possibility of amount of money spent by customers increase

C Other expenses of the restaurant chain rose dramatically after the wage hike, for reasons unrelated to the minimum wage raise.
>>only exlplains why cost increases

D The restaurant chain decided to increase wages for managerial employees who were making slightly more than minimum wage simultaneously with the minimum wage increase.
>>only exlplains why cost increases

E Cashiers and cooks, who are usually paid minimum wage, comprise most of the staff at the restaurant chain.
>>only exlplains why cost increases

Hence my Vote for B

karnavora1 · Answer

Thousands of people work at G. Handy's, an inexpensive fast-food restaurant chain that pays most of its employees minimum wage. Even though new laws forced an increase in the minimum wage, and thus substantially raised the restaurant chain's labor costs, its profits also rose substantially.

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

A Only a very small part of the 70 percent of operating expenses paid by the restaurant chain for employee compensation goes to pay managers.
   Incorrect - We need to answer why profits went up, this doesn't talk about that.

B People who earn minimum wage, or who rely on the earnings of others who do, comprise most of the restaurant chain’s customer base.
   Correct - If most people that come to the restaurant are earning minimum wage and they now have more income we can assume they will 
 spend more, I know its a lousy answer but its the only one that makes sense.

C Other expenses of the restaurant chain rose dramatically after the wage hike, for reasons unrelated to the minimum wage raise.
   Incorrect - This should decrease profits in fact.

D The restaurant chain decided to increase wages for managerial employees who were making slightly more than minimum wage simultaneously with the minimum wage increase.
   Incorrect - Doesn't talk about profits.

E Cashiers and cooks, who are usually paid minimum wage, comprise most of the staff at the restaurant chain.
   Incorrect - This doesn't tell us why the profit increased.

mdsaddamforgmat · Answer

IMO B
The Paradox is that despite increasing its Labor costs, its profits also rose substantially.

We need to find an option that will explain how the labor cost is linked with the growth in profit.

A Only a very small part of the 70 percent of operating expenses paid by the restaurant chain for employee compensation goes to pay managers. – this doesn’t clarify the required relation

B People who earn minimum wage, or who rely on the earnings of others who do, comprise most of the restaurant chain’s customer base. – Correct (if earning more by people resulted in more spending in hotel then it will justify why the profit of the hotel gone up)

C Other expenses of the restaurant chain rose dramatically after the wage hike, for reasons unrelated to the minimum wage raise. – Not concerned with other expenses going up

D The restaurant chain decided to increase wages for managerial employees who were making slightly more than minimum wage simultaneously with the minimum wage increase. – again, no such clarification of required relation

E Cashiers and cooks, who are usually paid minimum wage, comprise most of the staff at the restaurant chain. – again, no such clarification of required relation

100mitra · Answer

Thousands of people work at G. Handy's
>> G. Handy has 1000 employees

an inexpensive fast-food restaurant chain
>>  In expensive  fast food restaurant 
(mostly people with min wages will come here)

that pays most of its employees minimum wage. 
 >>G. Handy has employees with min wages .

Even though new laws forced an increase in the minimum wage, and 
 >>Min Wages increase for all min wage people, including the restraurant and other min wager earners
Overall earning increase for all G Handy's customer data base 
 
thus substantially raised the restaurant chain's labor costs, 
Overall its profits also rose substantially
 >> 1000 employess required to handle more customer with min wages, who regularly visit the restaurant. 
Increase in spending salary of 1000 employees = more earning from min wages customer

Exactly: option B is the correct choice  .
B People who earn minimum wage, 
or who rely on the earnings of others who do,  (restaurant employees) 
comprise most of the restaurant chain’s customer base  (max low wage customers)

VerbalBot · Answer

Automated notice from GMAT Club VerbalBot: 

A member just gave Kudos to this thread, showing it’s still useful. I’ve bumped it to the top so more people can benefit. Feel free to add your own questions or solutions.

 This post was generated automatically.

Thousands of people work at G. Handy's, an inexpensive fast-food resta

Prep Toolkit

Top 5 GMAT Debrief Videos

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards

GMAT Critical Reasoning (CR) Questions

Thousands of people work at G. Handy's, an inexpensive fast-food resta

Prep Toolkit

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards