Adv.Doc.CR.Q.no.72
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.
I was confused between D and E ,and was not able to eliminate E.
Profit = Revenue – Expenses.
Option D talks about the revenue part .Profit increases if revenue increases.
Option E talks about the Expenses part. Profit increases if expenses(production cost) decreases.
For the profit to decline I can either expect an effect on the Production cost or Advertising Revenue.
It would be great if the exact reason for elimination of E is provided.
Option E says production costs will remain stable. It doesn’t say production costs will decrease.
If production costs are stable, and assuming the subscription price doesn’t change, there is no change in profits. Since we don’t have information about the revenue, we can’t conclude about profits
Hope this helps 🙂
Thanks for the explanation :).
But, I am still not clear.
In Option D similar to the information about production costs in Option E, the advertising revenue is said to be same (neither does it increase or decrease) and no information is provided regarding the expenses(production costs involved).
Aren’t we concluding about profits with just the information on revenue and not about expenses.
Please let me know if am missing anything.