GMAT Question of the Day – 13/1/2021

(A) Charlesville Co. spends more money procuring cattle for its Hotdog and Beef products than it does paying its 4,000 workers.

(B) Charlesville Co. also saw an increase in expenses other than its wages in 1994.

(C) Before 1994, the company had considered giving its employees a 10% 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. (THIS IS CORRECT!)

(E) The majority of the company’s 4,000 employees work in the company’s meat-packing facilities.

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