GMAT Reading Comprehension: Business and Economics Passages Practice Questions - Reading Comprehension

Question 1

A company is deciding between two marketing strategies: one targeting broad awareness and another focused on high-value customers. The awareness strategy has higher potential upside but greater risk, while the customer-focused approach offers more predictable returns. This situation best illustrates the economic concept of:

Accepted Answer

B) Risk-return tradeoff

Answer

A) Opportunity cost

Answer

C) Economies of scale

Answer

D) Price elasticity

Question 2

When analyzing a company's financial statements, an investor notes that while net income has increased, operating cash flow has decreased. This divergence could reasonably be explained by all of the following EXCEPT:

Accepted Answer

D) Improvement in gross margins

Answer

A) Aggressive revenue recognition practices

Answer

B) Increased capital expenditures

Answer

C) Growth in accounts receivable

Question 3

In a perfectly competitive market, the long-run effect of a technological improvement that lowers production costs would be:

Accepted Answer

B) Lower prices and normal profits for surviving firms

Answer

A) Higher prices and greater profits for all firms

Answer

C) Market consolidation with a few dominant firms

Answer

D) Increased product differentiation among competitors

Question 4

A study finds that companies with diverse management teams show higher profitability. A skeptic argues this correlation might not imply causation because:

Accepted Answer

A) More profitable companies can afford better diversity programs

Answer

B) Diversity directly improves decision-making quality

Answer

C) Homogeneous teams tend to have faster decision cycles

Answer

D) Industry growth rates affect both diversity and profitability