QUESTION TEXT: In a business whose owners and employees…
QUESTION TYPE: Flawed Reasoning
CONCLUSION: A family business is the best way for a family to get rich.
REASONING: A family business can pay lower wages. That makes expenses lower and leads to higher profits.
ANALYSIS: What would you prefer?:
1. $3000 per month in your share of profits from the family business + $2000 per month in salary, or
2. $5000 per month in salary?
It amounts to the same thing, of course. If you increase profits in a family business by decreasing wages then you’re not really any richer. You just moved your money from one category to another.
- But the argument’s point is that those businesses could be even more profitable if they could pay low wages.
- Actually the argument directly says that low wages lead to overall low operating expenses and high profits.
- CORRECT. Profits are a bit of a fiction in this situation. You can have high profits and pay your children low wages + a share of the profits. Or you can have low profits and pay your children high wages. They get the same amount of money no matter whether we call it “profits” or “wages.”
- The argument didn’t say whether families would be willing to work in a family business. It just argued that if they did then their family would become prosperous.
- The argument didn’t say that. It just said that if everything else is equal then low operating expenses lead to higher profits.
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