Donut Chain, wishing to increase the profitability of its ne

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BTGmoderatorDC: Moderator; Posts: 7187; Joined: Thu Sep 07, 2017 4:43 pmFollowed by: 23 members

by BTGmoderatorDC » Sun Feb 03, 2019 11:37 pm

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Donut Chain, wishing to increase the profitability of its new store, will place a
coupon in the local newspaper offering a free donut with a cup of coffee at its
grand opening. Donut Chain calculates that the cost of the advertisement and the
free donuts will be more than recouped by the new business generated through
the promotion.
Which of the following, if true, most strengthens the prediction that Donut
Chain's promotion will increase the new store's profitability?
(A Donut Chain has a loyal following in much of the country.
(B) Donut Chain has found that the vast majority of new visitors to its stores
become regular customers.
(C) One donut at Donut Chain costs less than a cup of coffee.
(D) Most of the copies of the coupon in the local newspaper will not be redeemed
for free donuts.
(E) Donut Chain's stores are generally very profitable.

OA B

Source: Manhattan Prep

Source: Beat The GMAT — Critical Reasoning | Sun Feb 03, 2019 11:37 pm

deloitte247: Legendary Member; Posts: 2214; Joined: Fri Mar 02, 2018 2:22 pmFollowed by: 5 members

by deloitte247 » Wed Feb 06, 2019 10:27 pm

The main concern of the argument depicts that the cost of the advertisement and free Donuts and coffee will be more than they can make by the new business which is generated through the promotion.

Option A :- INCORRECT
The option doesn't have much effect on the prediction mentioned earlier, because even with the fact that Donut chain has a loyal following, the loyalty of the masses may waver at the advent of this new store or another Donut store might come up to be more better and preferred to that of Donut chain.

Option B :- CORRECT
If true that the majority of new visitors that come to Donut chain become regular customers, it means that the coupon can help to bring in new visitors who can eventually become regular customers which will help to increase the new store's profitability.

Option C :- INCORRECT
Even with the fact that one Donut costs less than a coffee, it doesn't have a lot of effect that can help to increase the profitability of the new business.

Option D :- INCORRECT
If most of the coupons in the Newspapers are not redeemed, it means the new customers won't come around to become regular customers and this will decrease the profitability of the new store.

Option E :- INCORRECT
Donut chains being generally profitable doesn't mean that this new store will be. This option doesn't help to strengthen the prediction that the promotion will help to increase profitability.

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