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GMAT Question of the Day – 13/1/2021

QUESTION

At the beginning of 1994, Congress enacted a 10% increase in the federal minimum wage. At that time, Charlesville Hotdog and Beef Company employed 4,000 employees, with over 90% 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 1994.

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

ANSWER SELECTION

ANSWER EXPLANATION

Since it asks you to resolve an apparent paradox, this is an Explain question.

In the stimulus, it is revealed that Charlesville’s profits increased markedly in 1994 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, find an answer choice that allows us to show that Charlesville could have also enjoyed a simultaneous increase in revenue.

Only (D) provides for the possibility of increased revenue. It suggests 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 for the company’s products.

(A) only establishes 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, so it does not resolve the paradox.

(B) 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, and this choice doesn’t provide any evidence of such an increase.

(C) and (E) are irrelevant. Neither the consideration of a raise prior to 1994 nor the fact that most of the employees work in meat packing helps to explain the apparent paradox.

Clever Academy

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