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Complaints that milk bottlers take enormous markups on the

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Complaints that milk bottlers take enormous markups on the [#permalink] New post 22 Feb 2008, 02:42
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Complaints that milk bottlers take enormous markups on the bottled milk sold to consumers are most likely to arise when least warranted by the actual spread between the price that bottlers pay for raw milk and the price at which they sell bottled milk. The complaints occur when the bottled-milk price rises, yet these price increases most often merely reflect the rising price of the raw milk that bottlers buy from dairy farmers. When the raw-milk price is rising, the bottlers’ markups are actually smallest proportionate to the retail price. When the raw-milk price is falling, however, the markups are greatest.
If all of the statements above are true, which one of the following must also be true on the basis of them?
(A) Consumers pay more for bottled milk when raw-milk prices are falling than when these prices are rising.
(B) Increases in dairy farmers’ cost of producing milk are generally not passed on to consumers.
(C) Milk bottlers take substantially greater markups on bottled milk when its price is low for an extended period than when it is high for an extended period.
(D) Milk bottlers generally do not respond to a decrease in raw-milk prices by straightaway proportionately lowering the price of the bottled milk they sell.
(E) Consumers tend to complain more about the price they pay for bottled milk when dairy farmers are earning their smallest profits.

Explanation pls
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Neelabh Mahesh

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Re: CR: Mark ups [#permalink] New post 22 Feb 2008, 05:12
I think the answer is D, because if the milk bottlers responded right away to a decrease in the raw milk price they could not have the greatest markup when the raw milk price is falling.

I did not find the other answers very convincing, although I considered C a posible answer at first.
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Re: CR: Mark ups [#permalink] New post 22 Feb 2008, 06:53
I choose C.
(C) Milk bottlers take substantially greater markups on bottled milk when its price is low for an extended period than when it is high for an extended period.
If the price of the raw milk is lower, the markup is higher.
If the price of raw milk is higher , the markup is lower.
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Re: CR: Mark ups [#permalink] New post 22 Feb 2008, 07:10
I agree with Zoltan, it is D

When price of raw milk goes up, bottled milk goes up.
When price of raw milk goes down, the price doesn't necessarely go down, hence a higher profit for bottled milk.
Therefore, D it is.
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Re: CR: Mark ups [#permalink] New post 22 Feb 2008, 08:16
(A) Consumers pay more for bottled milk when raw-milk prices are falling than when these prices are rising. [Definitely not – markups make sure that consumers pay the same amount – eliminate it]
(B) Increases in dairy farmers’ cost of producing milk are generally not passed on to consumers.[If so, we will not have price gauging - eliminate it]
(C) Milk bottlers take substantially greater markups on bottled milk when its price is low for an extended period than when it is high for an extended period. ["substantially" too extreme – eliminate it]
(D) Milk bottlers generally do not respond to a decrease in raw-milk prices by straightaway proportionately lowering the price of the bottled milk they sell. [Hold it]
(E) Consumers tend to complain more about the price they pay for bottled milk when dairy farmers are earning their smallest profits. [Consumers don’t care whether dairy farmers earns or not – eliminate it]

Answer: D
Re: CR: Mark ups   [#permalink] 22 Feb 2008, 08:16
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