CR: Because postage rates are rising, Home Decorator

[sharmin.karim]

Because postage rates are rising, Home Decorator magazine plans to maximize its profits by reducing by one half the number of issues it publishes each year. The quality of articles, the number of articles published per year, and the subscription price will not change. Market research shows that neither subscribers nor advertisers will be lost if the magazine's plan is instituted.

Which of the following, if true, provides the strongest evidence that the magazine's profits are likely to decline if the plan is instituted?

A. With the new postage rates, a typical issue under the proposed plan would cost about one-third more to mail than a typical current issue would.

B. The majority of the magazine's subscribers are less concerned about a possible reduction in the quantity of the magazine's articles than about a possible loss of the current high quality of its articles.

C. Many of the magazine's long-time subscribers would continue their subscriptions even if the subscription price were increased.

D. Most of the advertisers that purchase advertising space in the magazine will continue to spend the same amount on advertising per issue as they have in the past.

E. Production costs for the magazine are expected to remain stable.

The answer is D, however I picked A. Is it that D weakens the argument more so than does A?

[rags99]

a: 1/3rd increase in postal rate..is not sufficient enough to help u conclude if the mag. will make a loss or profit. U need more info.

D: if u look at the stimulus:
quality + quantity + rate are all same.. so we can assume that production cost is relatively unchanged.

D says: advertizers will pay same rate per issue as they were paying earlier..hence..
so if the cost is constant , but there is a drop of 50% in ad revenue, profits should obviously decrease.

hope that helps

[RonPurewal]

rags99, good explanation of (d).

let me add to (a):

a: 1/3rd increase in postal rate..is not sufficient enough to help u conclude if the mag. will make a loss or profit. U need more info.

actually, (a) is worse than that; (a) actually STRENGTHENS the conclusion about raising profitability.

here's why:
they're only going to send out half as many issues. therefore, unless the cost of postage doubles, they're actually going to spend less money on postage than they did before.

choice (a) says that postage will cost only 1/3 more - far less than double. therefore, choice (a) actually implies that the total cost of postage will go down. this is exactly the opposite of what you want.

[sudaif]

rags99, good explanation of (d).

let me add to (a):

a: 1/3rd increase in postal rate..is not sufficient enough to help u conclude if the mag. will make a loss or profit. U need more info.

actually, (a) is worse than that; (a) actually STRENGTHENS the conclusion about raising profitability.

here's why:
they're only going to send out half as many issues. therefore, unless the cost of postage doubles, they're actually going to spend less money on postage than they did before.

choice (a) says that postage will cost only 1/3 more - far less than double. therefore, choice (a) actually implies that the total cost of postage will go down. this is exactly the opposite of what you want.

Ron: can you pls elaborate on your explanation above with an example. I'm having difficult understanding why price would have to double for profitability to be adversely affected.
thanks

[RonPurewal]

Ron: can you pls elaborate on your explanation above with an example. I'm having difficult understanding why price would have to double for profitability to be adversely affected.
thanks

it may help to set specific numbers to the values in question.
let's say that they currently send out 10 issues per year, and that postage currently costs $3 per issue.
this is a total cost of $30 for postage.

if they cut the number of issues in half, to 5, than the postage would have to double (to $6/issue) to amount to the same total of $30.

if the postage increase is only 1/3, then the cost of postage per issue will only rise to $4. if only five issues per year are then sent out, the total cost of postage will fall from its original value ($30) to a new value of 5 x $4 = $20.

[sudaif]

thanks Ron!

[RonPurewal]

thanks Ron!

glad it helped

[rachelhong2012]

I also got this problem wrong, I picked A because I was concentrated on cost, but when I analyzed my mistake, I figured out the notes that I should have taken:

This is the conclusion I'm trying to attack:
Because reduce # of issues ---> cut cost---->profits will increase

The assumption has to do with revenue.

If # of subscribers and subscription price stays the same, then the only worry is that now with reduced # of issues, the total revenue will decrease

If # of advertisers stays the same, then the only worry is that the total revenue will decrease due to reduced # of issues.


There are thus two potential weakening factors.

C takes out one of the worry factors, so it's actually a strengthener.

I think I also have to get more used to GMAT's line of thoughts, usually when it talks about cost, the correct choice has to do with revenue, and vice versa, instead of continue to concentrate on that element mentioned in the stem.

[RonPurewal]

I think I also have to get more used to GMAT's line of thoughts, usually when it talks about cost, the correct choice has to do with revenue, and vice versa, instead of continue to concentrate on that element mentioned in the stem.

this isn't really "getting used to gmat's line of thought"; it's actually "thinking like a real-world person instead of thinking like someone studying for an academic exam".
in other words, taking into account both costs and revenues when thinking about profits is not some weirdly unique gmat mode of thinking; it's normal thinking. after all, revenues and costs are the two primary elements of profit, so it makes no sense to consider profit without giving due consideration to both of these components. this is what real-world thinking involves: taking into account, automatically, all of the components that are necessarily involved in something.

here's an analogy: let's say someone told you "if i move to new york, i will be able to make a higher salary. therefore, if i move to new york, i will have more money available to spend."
if someone told you this, then you would immediately start thinking about the offsetting costs of living -- even though the person has not explicitly mentioned costs of living -- because they are a fundamental part of the calculation in question: if those costs also go up, then the person may not have any more spending money despite having a higher salary.

so, this is the good news: the kind of thinking required for these problems is really just the kind of thinking that you use every day in the real world.
the real challenge is not "learning to think like gmac"; the real challenge is getting rid of the weirdly restrictive type of thinking that you have learned in classrooms.
in other words, if you simply stop thinking of this test as anything "academic", then your ability to process critical reasoning problems should improve almost overnight.

[arnabgangully]

I admit Ron , the way we have been tought in school is rules bound and more of repetitive tasks mastery .

GMAT is more of thinking and i have witnessed rules breaking. Most probably this exam is trying to test your thinking and the strain and endurance you can put on to your thinking patterns.

Be Creative , Avoid Learning and making Rules , There is no magic stick .'the best examples are the probablity questions where you can solve them without prior knowledge of complex formulae'

[RonPurewal]

Most probably this exam is trying to test your thinking

Yes.

and the strain

No.

If you have to "put strain on your thinking patterns", then you are probably thinking in ways that are wrong.

You will never need to think outside of normal, everyday thought processes for GMAT CR.
Never ever.
Ever.

(Ironically, this is one of the reasons why the GMAT is hard for lots of people. If someone believes that GMAT CR tests some kind of special academic logic that requires lots and lots of studying, that attitude will make it extremely difficult for that person to use normal common sense.)

[RonPurewal]

and endurance

In terms of the length of the entire test? Yes.

In terms of individual questions? No. (No CR thought process should ever have lots and lots of steps. The connections should be quick, strong, and direct.)

[harika.apu]

a: 1/3rd increase in postal rate..is not sufficient enough to help u conclude if the mag. will make a loss or profit. U need more info.

D: if u look at the stimulus:
quality + quantity + rate are all same.. so we can assume that production cost is relatively unchanged.

D says: advertizers will pay same rate per issue as they were paying earlier..hence..
so if the cost is constant , but there is a drop of 50% in ad revenue, profits should obviously decrease.

hope that helps

Hello Ron
How is the cost same ?
if number of issues produced is reduced by half
then cost to mail and cost for production may change
Am i right ?

[RonPurewal]

which choice(s) are you asking about?

• postage costs are addressed only in choice (a), which actually SUPPORTS the idea that the plan will increase profits (since less money will be spent on postage overall).

• production costs are addressed only in choice (e), which says that (for whatever reason) those costs will not change.

• there's no reason to think about these costs in considering B, C, or D.

[harika.apu]

which choice(s) are you asking about?

• postage costs are addressed only in choice (a), which actually SUPPORTS the idea that the plan will increase profits (since less money will be spent on postage overall).

• production costs are addressed only in choice (e), which says that (for whatever reason) those costs will not change.

• there's no reason to think about these costs in considering B, C, or D.

Hello Ron,
Sorry Ron,I mistakenly considered these costs in option D
Unless given , i should consider them to be same as before

Thanks