I put B on my MGMAT CAT and got this one wrong.

The OE is:

The tension indicated in the argument is that between the benefits of focusing on one primary product or service and the inherent risks of relying too heavily on an undiversified income stream. The correct answer choice must exemplify this tension.

(A) CORRECT. This example correctly identifies a company with a clear, narrow focus – a local messenger service - that enjoys a competitive advantage because of its reputation for speedy deliveries. At the same time, its undiversified income stream becomes problematic when a factor outside of its control – the relocation of local businesses out of state – forces it to lay off employees.

(B) This example does not specify any particular focus of the advertising agency nor does it demonstrate any major cash flow consequences due to the loss of the client.

(C) In contrast to the predicament described in the passage, this example describes a company that is interested in diversifying its holdings.

(D) The fact that the construction company is attempting to increase its profits does not illustrate the tension described in the passage.

(E) Though the specialty sandwich store that uses local ingredients might be called a very focused company, there is no evidence presented that this focus has had any adverse effect on cash flow.

Companies are often torn between the benefits of focusing on one major product or service and the drawbacks of relying too heavily on one primary source of income. While narrow focus can provide a company with an advantage over competitors that offer a wider range of products or services, an undiversified income stream can leave a company susceptible to major fluctuations in cash flow. We can see this tension realized when, for example, ________________.

(A) a local messenger service known for its speedy deliveries is forced to lay off twenty percent of its work force after a rise in local taxes encourages many local businesses to move out of state
> "known for" speedy deliveries doesnt necessarily mean its primary business revenue stream is from a single source ?
(B) an advertising agency loses one of its clients
> we dont see the contrast between the two issues here.
(C) a holding company that owns a car rental agency and a national doughnut chain is now interested in purchasing a professional basketball team
> fully diversified company, so no issue of single stream of revenue.
(D) a construction company opts to use non-union labor to increase its profits
> dont have enough info if the company is relying on single prod/service for revenue.
E) a specialty sandwich store decides to open franchises throughout the country that will focus on using local ingredients
> definetly single prod/service focus, though they could be making many specialty sandwiches. It can be argued its a single stream of revenue even though they are diversified in terms of locations. What if every one stops going to these franchises because of a virus outbreak ?