Country X imposes heavy tariffs on imported manufactured goods. Compan

Hey All,

This is a tough question, and since it's one of ours, I figured I had to weigh in.

Conclusion: Company Y could increase profits by putting factory in Country X
Premise: Country X has heavy tariffs on imports
Assumption: People actually buy Company Y's stuff in Country X

This is a tough question because of answer choice A. You're supposed to look at it and say "Well, if they can't even open the factory, won't that negate the conclusion?" And you'd be right, if not for one little word in the passage: could. If this passage said, Company Y WILL make a big profit next year by building a factory, then answer choice A would be correct, because that makes it impossible for them to actually build the factory.

But this passage merely says they "could" make a profit by opening the factory. In this hypothetical universe, the factory has already opened. Whether or not there are impediments to making this happen is immaterial. The issue is whether the existence of the factory will make them a profit.

A: Company Y will be able to obtain all the necessary permits to open a factory in Country X.
Problem: We don't need to know how hard it is to make the factory. The conclusion implies that the factory is already open.

B: Company Y currently produces no goods outside its home country.
Problem: This has no connection to whether or not they will make money if they DO produce goods outside the home country.

C: A sustainable market for Company Y's goods currently exists in Country X.
Answer: You can't make a profit if nobody's buying, no matter how many tariffs you dodge.

D: Company Y's home country does not impose tariffs on imported goods.
Problem: This doesn't matter, because Company Y wants to make a profit on goods sold in Country X.

E: Labor costs in Country X are lower than those in Company Y's home country.
Problem: This strengthens the argument a bit (because the factory in Country X will be cheaper, leading to potential profit), but it isn't necessary. If we take the negation ("Labor costs in Country X are NOT lower than in Country Y), the argument does not fall apart.

Hope that helps!

Hey Nverma,

It's a tough question, but the answer is definitely C. You have to stay REALLY close to what's written.

The passage says that the company has concluded it COULD increase profits by OPENING a factory. So the issue isn't whether it is possible to open a factory, but whether IF THE FACTORY WERE OPENED, it would make a profit.

Answer choice A tells us that it will be difficult to open the factory, but that is unrelated to the conclusion. We're only interested in whether or not an OPEN FACTORY would be profitable. There is no need to differentiate between long-term and short-term profits, or between present and future profits. This is about a hypothetical situation in which the factory is open. Only C relates to this.

Hope that helps!

OFFICIAL EXPLANATION

The text tells us only that Country X imposes heavy tariffs on imported goods and that Company Y believes it can increase long-term profits by opening a factory in Country X so it can avoid having to import its goods into Country X. We are asked to select an answer choice that is an assumption required for Company Y's belief to be valid.

(A) While this is a tempting answer, it is not necessary to assume that Company Y will be able to obtain all necessary permits. The text does not indicate whether Company Y will actually be able to implement the plan, only that the plan could increase profits if implemented.

(B) We are given no information about Company Y's activities in other countries.

(C) CORRECT. In order for Company Y to conclude that it can increase long-term profits by opening a factory in Country X, it must believe that a sustainable market exists for its products in that country. Otherwise, the new factory would not generate revenue and the company could not recoup the cost of the new factory.

(D) We are given no information about tariffs in Company Y's home country.

(E) We need not assume that labor costs are lower in Country X. It could be that labor costs in Country X are higher than those in Company Y's home country but the increased cost of labor is still less than the tariffs. This would result in a net savings for Company Y in Country X.
_________________

Company Y will be able to obtain all the necessary permits to open a factory in Country X.
- Obtaining permits does not guarantee profits in the long term. So this is out.

Company Y currently produces no goods outside its home country.
- Out of scope

A sustainable market for Company Y's goods currently exists in Country X.
If there is a market, then profits would follow(Remember in the long run). Hence the answer.

Company Y's home country does not impose tariffs on imported goods.
- Out of scope

Labor costs in Country X are lower than those in Company Y's home country.
-Cost has lots of components such as capital cost, distribution cost etc... Labor cost is one such cost. it could happen that, in country Y, Labor costs could be low and capital cost cost could be high resulting in over all higher cost of the product than tariffs could account resulting in lesser margins. hence this choice is wrong.

With C, first of all, the word "sustainable" is a key word. There may be a market of country Y's goods in country X, but if the market is not sustainable, then the plan may not work.

With E, because the question asks "which assumption must be true"? We can't not say labor cost must be lower for the plan to work.
Labor cost is just one of the costs, labor cost may not be lower, but if material cost in country X or some other costs are lower, the plan still works.

The answer to the question is C, with this explanation from MGMAT:
In order for Company Y to conclude that it can increase long-term profits by opening a factory in Country X, it must believe that a sustainable market exists for its products in that country. Otherwise, the new factory would not generate revenue and the company could not recoup the cost of the new factory.

What I don't get: how can C be right because the passage states that company Y currently produces goodsfor sale in country X.... so we know that there is a market for comany Y in country X, no?

What am I missing?

If we see the question stem, we have been asked "For Company Y's determination to be true, which of the following assumptions must also be true".
whether the determination only includes making profits...??
What i understand the determinations starts "from building up a factory........ to profit generation".

Also "C" only talks about the "current" market condition, it doesn't forecast the market conditions in future.And Company is looking for long term profits....NOT current profits.

IMO A is better than C.

Don't miss the word 'sustainable'. Country X is selling its products today means that its products have a market today. That doesn't ensure that the products will have market tomorrow also. It's whole plan is based on long term gains. What use id it of if it opens a factory today & has a market today but 2 years down the line it realizes that its market has ceased to exist.

A & E are lucrative options but out of the scope of the problem.

well i willl go for C in one reading only..

I think if one company doest have sustainable market in some country whats the use in getting all permits cleared and cheap labour cost....

Infact it might be a dead investment..........

C...............:D

heavy tariff on imported goods to Country Y is cost...
manufacture in Country Y will increase profit...

(B) is irrelevant to the profit increase...
(D) attempts to reverse the situation... tariff on Country Y for imported goods is another story...

To increase profits: decrease cost, increase market/sales
(E) and (C) seem to be relevant to increase in profits BUT Labor Cost will need us to assume more than what is given...

(C) on the other hand, is about having a market which is a basic requirement to making sales...
If there is no market, how can profit increase?

Answer: C

ANALYZE THE ARGUMENT:

Fact: Country X imposes heavy tariffs on imported manufactured goods.
Conclusion: Company Y has determined that it could increase its profits in the long term by opening a factory in Country X to manufacture the goods that it currently produces in its home country for sale in Country X.

KEY words: “profits the long term”. If Y wants to make profits in the long term, it MUST be able to sell its products. If Y can't sell its products, the strategy will fail.

For Company Y's determination to be true, which of the following assumptions must also be true?

ANALYZE EACH ANSWER:

Company Y will be able to obtain all the necessary permits to open a factory in Country X.
Wrong. Obtain all permits does NOT guarantee that Y can sell products and have long term profits. Selling products does not depend on acquiring permits ONLY.

Company Y currently produces no goods outside its home country.
Wrong. It’s fact. B cannot be the assumption. Clearly, fact is not an assumption.

A sustainable market for Company Y's goods currently exists in Country X.
Correct. Key word is “sustainable market”. C means customers in country X are willing to buy Y’s goods for long term. That is the key for Y’s dermination to be true.

Company Y's home country does not impose tariffs on imported goods.
Wrong. Out of scope. The argument does not talk about the tariff policies in country Y.

Labor costs in Country X are lower than those in Company Y's home country.
Wrong. Quite Tempting. Labor costs is just one of many costs involving the manufacturing process. What if labor costs are lower in Country X, but other costs such as rent, electricity, insurances, etc… are higher than those in Country Y. Thus cost of good sold of Y’s goods is high, making prices for Y’s good not competitive.

Hope it helps.

Hi pqhai,

What if i say that a sustainable market is necessary, but if the company X is not able to produce goods due to higher restriction, would there be any production.

For E,
Profits= Revenue - Expense,
Not if Labor cost in X is < Labor cost in Y,
then profits will increase.

I agree that sustainable market should be there to sell goods, but to sell good one needs to produce them first.

Our motive is to increase profitability......
Goods produced ---> Good sold ----> profitability increased

For C, if i say that amount saved from non-importing is less than the increase in cost of raw materials/rent/expenses while switching to country X, so even if sustainable market is there, the profitability will decrease in that case..


Thanks,
Jai

Hi Jai

C: A sustainable market for Company Y's goods currently exists in Country X.
You can see the blue part. It means company Y has been able to produce goods and sell them in Country X already. That's the base for the success of Y in the future.

E: You have a common fallacy in reasoning. You assume labor is the only factor --OR-- the main factor of Y's total costs. What if labor cost decreases, but other costs increase (rent, insurance, legal fees, electricity...). You can't say labor cost decreases = Y's cost of good sold decreases too.
Formula: Profit = Revenue - Labor costs - Material costs - Rent - Other costs.
==> Only labor costs decreases does NOT guarantee total cost decrease.

Hope it helps.

Hi,

Got your point..!!

Thanks,


Can you enlighten on A.
If the company X has restriction to product goods, then A should be an assumption.

Thanks,
Jai

Good question Jai.
A is a very classical "necessary condition". But it is NOT a sufficient condition.

Okay, I will rewrite a definition of an assumption: "An assumption is a hidden statement that MUST be true for a conclusion to be true". It means if the assumption happens, the conclusion MUST be correct. If the assumption happens, but the conclusion MAY/ MAY NOT be correct. That assumption is wrong.

Conclusion: Y could increase its profits in the long term by opening a factory in Country X.

Let assume, Country X has some restrictions that make Y more difficult to get permit But Y still get permit. Is it enough for Y to earn profits in the long term? Nope. Because there are many other factors affecting the selling of Y. So "getting a permit" is only a necessary condition. It does not guarantee the conclusion WILL be true. Thus, A cannot be the correct assumption.

Hope it's clear.

P1:Country X imposes heavy tariffs on imported manufactured goods.
P2:Company Y has determined that it could increase its profits in the long term by opening a factory in Country X to manufacture the goods that it currently produces in its home country for sale in Country X.

Conclusion:
Y could increase its profits in the long term by opening a factory in Country X to manufacture the goods that it currently produces in its home country for sale in Country X.

How?
Because Country X imposes heavy tariffs on imported manufactured goods.So by manufacturing the product within the contry X, the import tariffs can be avoided.

For Company Y's determination to be true, which of the following assumptions must also be true?
A: Company Y will be able to obtain all the necessary permits to open a factory in Country X.
>> Permit is not concern as per the mentioned argument.Concern is related to profit earned on the good , so focus on the factors that can leads to product sale/price etc.

B: Company Y currently produces no goods outside its home country.
>> Clearly no relevance to the argument.

C: A sustainable market for Company Y's goods currently exists in Country X.
>> sustainable market => This is a crucial factor.If the demand for the product is low then sale would be less and certainly brings the conclusion under doubt.

D: Company Y's home country does not impose tariffs on imported goods.
>> As per the arg , the goods in question are the one that Y currently produces in its home country for sale in Country X.

E: Labor costs in Country X are lower than those in Company Y's home country.
>>This is a tempting option.
What if the saving from the import tariff is cancelled out by the labour cost. But what makes C betters than E is that there are lots of loose ends here e.g. how much costly,may be Y's would transfer employee from Y to X etc.

Nice and tough question!

Got this question wrong, but I realized what was my mistake.

The conclusion that cY could (possibility) increase its profits in the long term by opening a factory in country X relies on the assumption that there is a market sustainable market now. And sustainable is related to long term.
P1: cY's goods are currently sold in Country X, but they are produced in Y's home country.
P2: High X's tariffs on imported goods.

Answer choice analysis
B, D are irrelevant. There is no connection with the possibility to increase profits if they open a factory in country X.

A) Company Y will be able to obtain all the necessary permits to open a factory in Country X. Irrelevant
For an hypothetical conclusion (could increase profits...), this assertion don't need to be consider.

C) A sustainable market for Company Y's goods currently exists in Country X. Correct
Aligned with pre-thinking. Sustainable relates to long-term

E) Labor costs in Country X are lower than those in Company Y's home country.Incorrect
This option could strengthen the conclusion but is not a necessary assumption. We don't know if the savings in labor cost for producing goods in X and saving for not importing goods will exceed the cost of opening the new factory. Could be true or not.

When a CR passage describes a PLAN:
The PREMISE is the plan itself.
The CONCLUSION is the goal of the plan.
The ASSUMPTION is what must be true for the plan to work.

In the passage, above:
The plan is to OPEN A FACTORY in Country X in order to avoid the tariff.
The goal is to INCREASE PROFITS.
Which answer choice MUST BE TRUE for the plan to work?

• Company Y will be able to obtain all the necessary permits to open a factory in Country X. No. The argument is not about whether the factory CAN be opened but about whether -- IF THE FACTORY IS OPENED -- Company Y will increase its profits. Eliminate A.

• Company Y currently produces no goods outside its home country. No. For the plan to work, it does not have to be true that company Y currently produces no goods outside its home country. Eliminate B.

• A sustainable market for Company Y’s goods currently exists in Country X. Correct. Note that the passage tells us only that the goods produced by Company Y are FOR SALE in Country X. For Company Y to increase its profits, it is not enough that the products be FOR SALE; it must be true that there is a MARKET for the products and that people BUY them.

• Company Y’s home country does not impose tariffs on imported goods. No. The argument is not about importing goods into Company Y's home country. Eliminate D.

• Labor costs in Country X are lower than those in Company Y’s home country. No. It does not have to true that labor costs in Country X are LOWER; it must only be true that labor costs in Country X are not significantly HIGHER. Eliminate E.

The correct answer is C.

I was not very sure about answer choice A & C. I applied Assumption negation test to find the correct answer choice between these two and could not succeed:
A) Company Y will be able to obtain all the necessary permits to open a factory in Country X -- Company Y will NOT be able to get the permits required to open the company -- How then the company could get long term profits if the factory doesn't open??
C) A sustainable market for Company Y's goods currently exists in Country X. -- A sustainable market for Company Y's goods CURRENTLY DOES NOT exist in Country X -- The conclusion still makes sense to me, we are talking about long term, why should the current state of market hamper the conclusion??
egmat GMATNinja Please help