Researchers have found that workers in firms with fewer than 20 employees are, on average, little more than half as...

GMAT Multi Source Reasoning : (MSR) Questions

Source: Mock

Multi Source Reasoning

Case Study

HARD

...

Notes

Post a Query

Firm Size

Nation X

Data

Researchers have found that workers in firms with fewer than 20 employees are, on average, little more than half as productive as the workers in firms with 250 or more, and that, overall, a bias toward small firms is economically costly.

These researchers blame strict employment regulations for the small sizes of firms: because small firms are sheltered from these regulations, they act as a tax on large firm size. For example, the researchers attribute the steep drop in the number of manufacturing firms in Nation E with precisely 50 or more workers (see the Data tab) to just such regulations. Across both manufacturing and service sectors and for firms of various sizes, firms that might have grown bigger have chosen to stay small. The result is significantly less productivity per employee.

Ques. 1/3

Suppose that Nation X's present pattern of manufacturing productivity, per employee, aligns with the graph displaying the average productivity by size of manufacturing firm, and that Nation X has recently repealed most of the regulations listed in Tab 2. For each of the following statements, select Yes if the information provided clearly suggests that the statement describes a result of this change that would be expected by the researchers. Otherwise, select No.

Yes

The average firm size will increase.

Yes

Productivity per employee will increase.

Yes

The average productivity per employee across all firms with exactly 200 employees will increase.

Solution

Owning the Dataset

Understanding Source A: Text - Research Report on Firm Size and Productivity

Information from Dataset	Analysis
""workers in firms with fewer than 20 employees are, on average, little more than half as productive as the workers in firms with 250 or more""	Small firms (under 20 employees) have productivity that is just over 50% compared to large firms (250+ employees) This represents a significant productivity gap between small and large firms Key Finding: The productivity disadvantage of small firms is substantial and measurable
""overall, a bias toward small firms is economically costly""	Having many small firms instead of larger ones reduces overall economic efficiency Key Finding: The economy would benefit from having more large firms
""These researchers blame strict employment regulations for the small sizes of firms: because small firms are sheltered from these regulations, they act as a tax on large firm size""	Employment regulations apply differently based on firm size Small firms avoid certain regulations, creating an incentive to stay small Key Finding: Regulations effectively penalize growth beyond certain thresholds
""the steep drop in the number of manufacturing firms in Nation E with precisely 50 or more workers""	There's a sharp decline in firms at the 50-employee mark Key Finding: This suggests something significant happens at 50 employees (likely regulatory)
""firms that might have grown bigger have chosen to stay small""	Firms are making deliberate decisions to limit growth Key Finding: This applies across both manufacturing and service sectors

Summary: Research shows small firms are significantly less productive than large firms (roughly half as productive)
Researchers attribute this to employment regulations that incentivize firms to remain small

Understanding Source B: Text - Nation X Employment Regulations

Information from Dataset	Analysis
""Firms with at least 20 employees—the level at which regulatory scrutiny begins in earnest""	20 employees marks the first major regulatory threshold Key Finding: Below 20 employees, firms face minimal regulatory requirements Connection to Source A: This confirms Source A's point about small firms being ""sheltered from these regulations""
Requirements at 20+ employees: ""submit taxes monthly rather than quarterly"" ""subsidize employees' transportation"" ""contribute an amount equal to 5 percent of employee compensation to continuing education""	Administrative burden increases (more frequent tax filings) Direct costs increase through mandatory transportation subsidies Additional 5% labor cost through education contributions Key Finding: These requirements significantly increase operational costs
Requirements at 50+ employees: ""provide compensatory rest, together with overtime pay"" ""provide for election and compensation of an employee-representative committee""	Labor costs increase through overtime requirements Administrative complexity increases with employee committees Key Finding: This is a cumulative system - larger firms must meet all lower-tier requirements Connection to Source A: This 50-employee threshold directly explains the ""steep drop"" in firms at 50+ employees mentioned in Source A
Requirements at 200+ employees: ""submit human resources planning to government ministry"" ""maintain a government-approved employee profit-sharing program""	Government oversight becomes more direct Mandatory profit-sharing adds another cost layer Key Finding: The regulatory burden is highest for the largest firms

Summary: Nation X's employment regulations create three major thresholds (20, 50, and 200 employees)
Each threshold brings progressively more costly requirements
This explains why firms choose to stay small as noted in Source A

Understanding Source C: Visual Data - Charts on European Firm Distribution and Productivity

Chart 1 - Number of manufacturing firms by employment size in Nation E, 2007:
- Shows approximately 400 firms at 31 employees, gradually declining to ~300 firms around 48 employees
- Sharp drop at 50 employees to ~150 firms
- Remains around 100 firms for sizes above 50 employees
- Key Finding: Most firms cluster in the 31-49 employee range, avoiding the 50-employee threshold
- Connection to Source A: This visual data confirms the ""steep drop"" at 50 employees mentioned in Source A
- Connection to Source B: The 50-employee cliff perfectly aligns with Nation X's major regulatory threshold at 50 employees

Chart 2 - Distribution of employees by size of firm (2009):
- Shows 9 nations (A through I) with three categories: 0-9, 10-249, 250+ employees
- All nations show similar pattern with majority in 10-249 category
- Key Finding: Employment distribution is relatively consistent across nations despite different regulatory environments

Chart 3 - Average productivity by size of manufacturing firms (2009):
- Shows productivity index where 250+ workers = 100
- 0-9 employees: ~50
- 10-19 employees: ~50
- 20-49 employees: ~60
- 50-249 employees: ~70
- 250+ employees: 100
- Key Finding: Clear positive correlation between firm size and productivity
- Connection to Source A: Confirms that smallest firms (0-19) have ""little more than half"" the productivity of largest firms
- Connection to Source B: The productivity jump at 20 employees corresponds with the first regulatory threshold

Summary: Visual data confirms Nation E's unusual firm distribution with a sharp drop at 50 employees
Validates the productivity gap between small and large firms
Shows how regulatory thresholds create visible distortions in firm size distribution

Overall Summary

The dataset reveals how employment regulations create artificial constraints on firm growth
Nation X's regulatory thresholds at 20, 50, and 200 employees explain why firms in Nation E cluster below 50 employees
There is a dramatic drop at precisely the 50-employee threshold
This regulatory-induced bias toward small firms comes at a significant cost
Key Economic Impact: Small firms (under 20 employees) operate at roughly half the productivity of large firms (250+ employees)
The evidence shows that while regulations successfully keep firms small, they do so at the expense of overall economic productivity

Question Analysis

In Plain Terms: If Nation X removes its employment regulations (that apply at 20, 50, and 200 employees), what changes would researchers expect in firm size and productivity?

Key Constraints:
- Answers must reflect what researchers expect based on the data provided
- Expectations must be clearly supported by the information
- Focus on firm size and productivity implications in Nation X

Answer Type Needed: Logical inference regarding regulatory impact on firms

Connecting to Our Passage Analysis

The analysis shows how regulatory thresholds create incentives for firms to remain small
This reduces both firm size and productivity
Removing regulations would remove these growth-limiting incentives
Can Answer from Analysis Alone: YES - All needed information is provided in the research data

Statement Evaluations

Current situation: Firms avoid crossing regulatory thresholds, keeping average size low and productivity lower than larger firms could achieve
Expected outcome: Without regulations, firms would grow larger and be more productive

Statement	Current State	After Regulation Removal	Expected Outcome
Average Firm Size Will average firm size increase after removing regulations?	Currently, firms avoid growing past thresholds (20, 50, 200 employees) to avoid costly regulations	Removing regulations removes growth disincentives. Firms would now grow beyond previous artificial limits	YES Average firm size will increase
Productivity Per Employee Will productivity per employee increase if regulations are removed?	Small firms have about half the productivity of large firms; growth would increase average productivity	Removing constraints would allow more firms to reach higher productivity sizes. More firms would operate at productive sizes	YES Productivity per employee will increase
200-Employee Firm Productivity Will average productivity per employee of firms with exactly 200 employees increase?	Firms at 200 employees already face all regulations; no direct change expected	No productivity increase expected specifically for these firms from repeal. No expected change at exactly 200 employees	NO No change predicted for 200-employee firm productivity

Logic Verification

Statement 1: Consistent with researchers' observation that regulations limit firm size
Statement 2: Aligns with the productivity-size relationship shown in the data
Statement 3: Lacks evidence since firms at 200 employees are already facing full regulations

Final Answer

Statement 1: YES
Statement 2: YES
Statement 3: NO

Answer Choices Explained

Yes

The average firm size will increase.

Yes

Productivity per employee will increase.

Yes

The average productivity per employee across all firms with exactly 200 employees will increase.

Rate this Solution

Tell us what you think about this solution

...

Forum Discussions

Start a new discussion

Post

Previous Attempts

Loading attempts...