A product that represents a clear technological advance over competing

The question tempts us to jump straight into the answer choices without first understanding the argument. But let’s focus first on the argument’s conclusion: “The strategy to maximize overall profit from a new product is to charge less than the greatest possible price.”

Now let’s break down the argument -- and this one is pretty long and complicated. Ignore the boldface for now, because if we don’t understand how the argument works, we’ll have a hard time explaining the role of each portion:

• A new product with advanced technology can generally be sold for a high price.
• Many companies will charge the highest possible price, because (a) advanced tech tends to be surpassed quickly and (b) companies want to make large profits while they still can.
  
  • Knowing that whatever technological advantage you have will soon be surpassed, you charge the highest possible price to maximize your immediate profits.
• When competitors see a company making large profits on a new product, they’ll want to quickly match that product’s tech.
  
  • By maximizing your own profits, you are giving competing companies an incentive to quickly "catch up" and make a product with similar capabilities.
  • If, instead, you DON'T charge the highest possible price and DON’T maximize your immediate profits, competitors will be less quick to match the product.
  • Without a glaringly high price tag, the technologically advanced product has more time to earn profits for your company.
• Therefore, according to the author, if a company wants to maximize overall profit from a new product, it should charge less than the highest possible price.

In this argument, the author lays out the reasoning for two strategies: charge the max price or charge less than the max price. According to the author, companies can maximize overall profit by charging LESS than the max price. Now let’s focus on the two statements in bold:

• “Many companies charge the maximum possible price for such a product.” - Many companies pursue the strategy of charging the max price. This is NOT the strategy recommended by the author.
• “technological advances tend to be quickly surpassed” - This is one of the two reasons why companies like to pursue the max-price strategy. The second reason is that “companies want to make large profits while they still can.”

Now that we have a very concrete breakdown of the passage, we can analyze the abstract-sounding answer choices without our eyeballs dissolving. Note that the choices are each broken into two halves, so if we reject either half, then we can reject the entire choice.


We know that statement 1 explains why companies like to charge the max. However, choice (A) claims that statement 1 explains why charging the max is counterproductive. That’s not what the “many companies” in this sentence believe, so let’s eliminate choice (A).


Choice (B) claims that statement 1 is supporting the author’s preferred strategy (don’t charge the max). But statement 1 actually explains why many companies do the opposite (charge the max).

Also, statement 2 presents the strategy employed by many companies, not the strategy that the author recommends. Eliminate choice (B).


Choice (C) matches our analysis precisely. Statement 2 lays out the strategy pursued by many companies (charging the max). Statement 1 states one of the two reasons why many companies decide to charge the max. Let’s keep this wonderfully straightforward answer choice and see if we can eliminate the rest.


We know that the author rejects the “charge-the-max” strategy followed by many companies. But does the author reject the fact that technological advances are quickly surpassed? No. The author believes this fact and recommends an alternate strategy with that knowledge. Eliminate choice (D).


The first half of choice (E) is fair enough. Considering that tech advantages don’t last long and that companies like profits, we can understand why many companies charge the max. However, does statement 2 (“many companies charge the maximum possible price for such a product”) present an intended outcome? No. The outcome of earning large profits is implied, but statement 2 simply states the strategy itself, not the intended outcome. Thus, the second half is definitely inaccurate, and we can eliminate choice (E).

The correct answer is (C).