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Newtronix, a technology company that sells only one product,

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Newtronix, a technology company that sells only one product, [#permalink] New post 22 Feb 2013, 12:10
00:00
A
B
C
D
E

Difficulty:

  45% (medium)

Question Stats:

38% (02:06) correct 61% (01:10) wrong based on 126 sessions
Newtronix, a technology company that sells only one product, recently raised prices on its signature product, the ePod. Analysts had predicted that increased prices would translate into higher profits for Newtronics. However, Newtronix saw its profits decline after the price increase.

Each of the following, if true, is convincing as an explanation for the decline in Newtronix’s profit EXCEPT

A. Newtronix’s market share has declined since the price increase.
B. A recent patent dispute led to the ban of sales of ePods in several countries.
C. Materials necessary to the production of a necessary component of the ePod recently went up in price.
D. The average customer purchased fewer ePods as a result of the price increase, while the number of customers purchasing ePods remained the same.
E. The government imposed higher taxes on Newtronix just prior to the price increase.

New question! Didn't find it on the forum. Topic tested - explain the discrepancy.
[Reveal] Spoiler: OA
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Re: Newtronix, a technology company that sells only one product, [#permalink] New post 22 Feb 2013, 21:19
Lets look at each of the answer choices by turn.

[A]: Does a decline in market share necessarily mean a decline in sales? No! Even if the market share has decreased, the sales and therefore the profits may not necessarily decline. This seems to be our answer.
[B]: A ban on the sales of the ePod will definitely hit profits. This is a convincing explanation.
[C]: If the costs of producing the ePod went up, it can hit profits in spite of a price increase. This is a convincing explanation.
[D]: If the average customer purchased fewer ePods while the overall number of customers remained the same, then overall profits can fall in spite of the price increase.
[E]: The govt's imposition of taxes can mean a hit in profitability in spite of a price increase as this is also akin to a cost increase.

Judging from this, it should be A. However, this question is not watertight and needs be further thought through. For example, option E does not completely explain what the magnitude of taxes was. If it was more than additional profits gained from the price increase, then overall profits can decline, but if it was not, overall profits will still rise. Similarly, it needs to be noted in option A that the market itself did not remain static, because if it did then the loss in market share will also mean a drop in sales, which might mean a drop in profits.

Overall, this question could be worded in a much, much better way.
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Re: Newtronix, a technology company that sells only one product, [#permalink] New post 24 Feb 2013, 04:31
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@gyan one ..i dont think the cases that u making does stand a chance for a gmat CR for the simple reason that if keep applying ifs and buts to answer choice then many gmat CR will fall apart .the fact is in most cases the answer choice of gmat CR typically opens up the "window" (as Ron calls ) and give us that opening to think the possibility or the non possibility of an argument
for instance the case that u making for E
Quote:
: If it was more than additional profits gained from the price increase, then overall profits can decline, but if it was not, overall profits will still rise.

this is not allowed
the fact is if u keep arguing like this almost all arguments will fall .when its written that taxes will increase that means that following equation : (profit = revenue - cost) gets affected by increased cost .
now the reason why A sud be the answer here is because with market share reducing we cannot be 100 percent sure that revenue will decline .
but with E we are 100 percent sure that cost will increase .now u cannot apply further if and but to this answer choice E
i hope this makes sense
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Re: Newtronix, a technology company that sells only one product, [#permalink] New post 25 Feb 2013, 03:35
from my angle : we are asked why the company got hit after its new product's launch/sale .
We went with A ...agree but what about option C.
If the materials' price needed to product the product epod got increased then that must has happen previous the sale or launch of the product in market.And already the price of the product has been increased.So i hope increased price of raw material could have hit the product during pr-sale but not after sale.

Please let me know if my idea is wrong.Still i will go with 'A' and my answer 'C' might be wrong.
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Re: Newtronix, a technology company that sells only one product, [#permalink] New post 19 Oct 2013, 01:04
if market share decline, your profits are bound to decline... eg: apple is concerned that samsung is eating up its market share. why? decrease in market share -> decrease in revenues -> decrease in profits.
Re: Newtronix, a technology company that sells only one product,   [#permalink] 19 Oct 2013, 01:04
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