gmat paper test

CITI29 · Posted: Fri Jul 11, 2008 12:58 pm Post subject: gmat paper test

If new working practices raise a firm’s
productivity, will the firm respond by paying its
workers more? Not in a competitive market. In such a
market the firm, to gain a competitive edge, will
reduce prices. The workers’ real wages, as measured
by those wages’ purchasing power, will still rise
because of lower prices.
In a competitive market which of the following, if
true, ensures that the workers of a firm that achieved
productivity gains will derive from these gains the
benefit of higher real wages?

(A) The workers’ firm continues to achieve
productivity gains.
(B) Other firms do not achieve comparable
productivity gains.
(C) The workers buy products made by the firm that
employs them.
(D) The workers prefer the new working practices
over the old.
(E) The firm pays its workers at or above the
industry’s average.

ans is : 'c' , pls explain

newera · Posted: Sat Jul 12, 2008 5:59 pm Post subject:

To summarize the stimulus, workers have purchasing power when their firm is ahead of the game and lowers its prices. Its assumed that a firm with lower prices will attract most clients (its competitive edge).

A--Even if the firm continues with its productivity, theres no guarantee that another firm's productivity won't surpass it. So that possibility is there.
B--this will actually lower purchasing power. if the other firms aren't up to par in terms of their productivity, they will lack competitive edge and thus, their prices will be higher. So, the majority of the marketplace will be expensive. Dollar will buy less.
C--Because the firm has a competitive edge and lower prices, workers will be able to get more for their money when purchasing the firms' products in comparison to purchasing products from the most expensive, less productive firms. Even though the wages don't raise as a result of the productivity, with prices going down, workers will feel wealthier.
D--irrelevant
E--we don't know what the industry average is.

nitin86 · Posted: Thu Jul 17, 2008 9:28 am Post subject: Re: gmat paper test

bigfernhead · Posted: Thu Jul 17, 2008 10:02 am Post subject:

How do you guys rate the difficulty of this question? I had a real hard time understanding it, and I probably had to re-read it more than 5 times. Embarassed