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Company X experienced a significant loss of market share ove

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Company X experienced a significant loss of market share ove [#permalink] New post 09 Jul 2013, 14:56
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Question Stats:

63% (01:56) correct 36% (01:22) wrong based on 133 sessions
Company X experienced a significant loss of market share over a number of years. To strengthen its market position, the company decided two years ago to increase the percentage of total revenue devoted to research and development. The following year, the company's market share increased by 10 percent. In response, company management further increased the amount of money devoted to research and development.

Which of the following investigations is most likely to yield significant information that would help evaluate whether the company's decision to further increase the research and development budget was warranted?


A)Determining how many new products the company has created over the past year

B)Determining the percentage of revenue that other companies devote to research and development

C)Determining whether any of the company's competitors have withdrawn from the market in the past two years

D)Determining the maximum percentage of revenue that the company can devote to research and development without affecting the company's production budget

E)Determining whether all of the company's new products have fared equally well in the marketplace
[Reveal] Spoiler: OA

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Last edited by blueseas on 09 Jul 2013, 20:58, edited 1 time in total.
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Re: Company X experienced a significant loss of market share ove [#permalink] New post 09 Jul 2013, 20:52
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If the market share increased because a competitor dissapeared, then the increase in the market share was not caused by the increase in the research and development budget.

So, it's possible that increasing the budget again won't increase the market share.
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Re: Company X experienced a significant loss of market share ove [#permalink] New post 09 Jul 2013, 22:38
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Very good question Shailes. :)

ANALYZE THE STIMULUS:

Fact: Company X experienced a significant loss of market share over a number of years
Fact: two years ago to increase the percentage of total revenue devoted to RnD.
Fact: The following year, the company's market share increased by 10 percent.
Conclusion: company management further increased the amount of money devoted to RnD.

Pre-thinking: Company X considered RnD expenses made market share increase 10% ==> Question: whether RnD expense was the only factor that made company X market share increase? Any other factor contributed to the increase such as competitors, new regulations, customers’ favors, etc?

ANALYZE EACH ANSWER:

A)Determining how many new products the company has created over the past year
Wrong. The number of new products does not guarantee the increase of market share ==> It may or may not affect the market share, we are not sure ==> Hence, A is wrong.

B)Determining the percentage of revenue that other companies devote to research and development
Wrong. The percentage of revenue devoted to RnD is just a “hard” fact. You cannot assume more percentage, more increase of market. We need a reason why the percentage links to the market share ==> B does not help.

C)Determining whether any of the company's competitors have withdrawn from the market in the past two years
Correct. The number of competitors has a direct link to the company X’s market share. If more competitors, company X’s market share may decrease. If fewer competitors, company X’s market share may increase without the help of RnD.

D)Determining the maximum percentage of revenue that the company can devote to research and development without affecting the company's production budget
Wrong. Same as B. You cannot assume: the more percentage, the more increase of market. Thus, determining the maximum percentage of revenue devoted for RnD does not help.

E)Determining whether all of the company's new products have fared equally well in the marketplace
Wrong. The same logic as A’s. The fact that “company’s new products have fared equally well” may or may not affect the market share increase, we are not sure ==> Hence, E is wrong

Hope it helps a bit.
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Re: Company X experienced a significant loss of market share ove [#permalink] New post 09 Jul 2013, 22:41
hi pghai,

kudos are the best way to appreciate good efforts... :wink:

well anyways thanks :-D
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Re: Company X experienced a significant loss of market share ove [#permalink] New post 09 Jul 2013, 22:49
shaileshmishra wrote:
Quote:
hi pghai,

kudos are the best way to appreciate good efforts... :wink:

well anyways thanks :-D


Sorry about that Shailes. +1kudo for you :)
Please keep posting new questions. I really appreciate your posts.
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Re: Company X experienced a significant loss of market share ove [#permalink] New post 09 Jul 2013, 22:50
pqhai wrote:
shaileshmishra wrote:
Quote:
hi pghai,

kudos are the best way to appreciate good efforts... :wink:

well anyways thanks :-D


Sorry about that Shailes. +1kudo for you :)
Please keep posting new questions. I really appreciate your posts.


yup sure pghai ...i willl
thanks again :)
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Re: Company X experienced a significant loss of market share ove [#permalink] New post 10 Jul 2013, 02:13
D)Determining the maximum percentage of revenue that the company can devote to research and development without affecting the company's production budget

Can someone please explain, why is this wrong?
What if the increase in the RnD intrudes in the production budget and hence decreasing the productions..
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Re: Company X experienced a significant loss of market share ove [#permalink] New post 10 Jul 2013, 02:27
Hi -

Firstly. The golden rule of GMAT: It's not about the perfect answer, it's about the best answer. C is clearly the best answer here, so whilst we can debate D, it's not the best answer by anyone's assumption.

The issue with D is that you can't assume: the more percentage, the more increase of market. Thus, determining the maximum percentage of revenue devoted for RnD does not help.
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Re: Company X experienced a significant loss of market share ove   [#permalink] 10 Jul 2013, 02:27
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