Very good question Shailes. ANALYZE THE STIMULUS:Fact:
Company X experienced a significant loss of market share over a number of yearsFact:
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 yearWrong.
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 developmentWrong.
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C)Determining whether any of the company's competitors have withdrawn from the market in the past two yearsCorrect. 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 budgetWrong.
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 marketplaceWrong.
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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