Near Chicago a newly built hydroponic spinach “factory,” a completely

We need to explain how spinach-growing facility near Chicago could be profitable. Note that the argument tells us that the production of factory spinach costs 4 times as much as field spinach. Say field spinach costs $1 per pack to produce and factory spinach costs $4 per pack to produce. To be profitable factory spinach will need to be sold at $5 per pack but field spinach can be easily sold at $1.50 per pack. So it seems that no one will buy the factory spinach because it will be way too expensive relative to the field spinach.

Also note that productivity per acre has no role to play here. We have been given that factory spinach production costs 4 time more. So it includes the cost of land and resources. When you sum it all up, you see that cost per packet for factory spinach is 4 times as much.

Let's look at the options now. We need one which can tell us why people may be willing to buy the much more expensive factory spinach.

(A) Once the operators of the facility are
experienced, they will be able to cut operating
expenses by about 25 percent.

A 25% cut and that too only in operating costs (not in the fixed costs) will have no meaningful effect. The cost of production might go down to $3.5 per pack. We will still need to sell it at a much higher cost that field spinach.

(B) There is virtually no scope for any further
reduction in the cost per pound for California
field spinach.

Out of scope. We don't even know if there is any scope of cost reduction in factory spinach. And even if there is, we don't know how much. Also scope of reduction and actual reduction are very different things.

(C) Unlike washed fi eld spinach, the hydroponically
grown spinach is untainted by any pesticides or
herbicides and thus will sell at exceptionally high
prices to such customers as health food
restaurants.

Now here is a reason why people may buy the $5 per pack spinach. This may mean that the factory may be profitable after all.

(D) Since spinach is a crop that ships relatively well,
the market for the hydroponically grown spinach
is no more limited to the Chicago area than the
market for California fi eld spinach is to
California.

The range of the market is not important. We can put the spinach in stores all across the world; the point is will people buy it?

(E) A second hydroponic facility is being built in
Canada, taking advantage of inexpensive
electricity and high vegetable prices.

Out of scope. We are worried about this factory only.

Answer (C)

Choice C presents an advantage to the hydroponically grown spinach-it can be sold to certain customers who are prepared to pay very high prices for it. This supports the projection that the facility will be profitable, and is thus the best answer. Choice A and B present the likelihood of changes in the cost of the two kinds of spinach, but neither choice suggests that the current large price differential can be overcome, so neither supports the projection. Choice D presents one advantage shared by the two kinds of spinach, but it does nothing to diminish the cost disadvantage of hydropnonic spinach. Choice E gives some reason to think that another hydroponic facility can be profitable but gives no reason to think that the facility under discussion can be so.

Detailed explanation for option A and D,
right now there is a cost discrepancy of 4:1 between the two types of product.

choice (a) talks about cutting "operating expenses" by %25.

two big problems here.

first, we have no idea of the significance of "operating expenses" in the overall picture (i.e., what fraction of total costs is thereby represented).

second--and much more importantly--a %25 reduction can't possibly make up for a 4:1 discrepancy.
even if "operating expenses" encompasses ALL costs, a %25 reduction would still leave a 3:1 discrepancy.

Choice (d) works neither for nor against the argument that the hydroponic spinach will be profitable. It states something that's equally advantageous for each of the 2 varieties of spinach.

(So, fine, it's just as easy to transport the hydroponic spinach as to transport the normal field spinach. But that does nothing to mitigate the issue, which is the 4-fold cost discrepancy.)

It's a good question, fast got trapped on it.

The main point I was looking for was either to find an argument which says that the prices for hydroponic spinach are significantly higher than for field spinach, or there is a possibility to reduce costs significantly. Only two answer choices state something about prices or cost reductions fpr "Super" spinach, so I've shortlisted to A and C.

(A) Once the operators of the facility are experienced, they will be able to cut operating expenses by about 25 percent --> the cots for "super" Spinach are x4 higher, so -25% won't help to be profitable.
(C) Unlike washed field spinach, the hydroponically grown spinach is untainted by any pesticides or herbicides and thus will sell at exceptionally high prices to such customers as health food restaurants --> CORRECT. firstly thought that health food restaurants is a limited market etc. But just learned not to make so many assumptions and deep thinking for this question type. So we get much more $ from health restaurants - supports that this product will be profitable.

Hi!
Thanks for this wonderful explanation. I also opted for C first, but then i rejected, thinking that what if there are no such customers as health food restaurants? (Question nowhere mentions such customers). I finally opted for A.
Can you explain on this please.
Thanks

The question states "if true". This implies when answering you will need to take the statements as true. The statement "The H spinach will sell to..." has to be taken as true while answering, i.e. there exist such customers.

Take a look at the question again:

Which of the following, if true, best supports a projection that the spinach-growing facility near Chicago will be profitable?

We need to support the projection of profit. We don't need to prove it beyond doubt. By saying that factory spinach is pesticide free and hence could sell at high prices to health conscious customers, we are establishing an advantage it has over the field spinach. Hence, it supports our claim that the factory could be profitable. Whether it will actually be profitable, we cannot say and we don't need to say. Option (C) tells us that there are customers who are health conscious. Note that we don't know whether they will be willing to buy a product at 4 times the cost no matter what the health concerns. Hence, we are not establishing that the factory will be profitable. All we are doing is supporting the claim.

Near Chicago a newly built hydroponic spinach “factory,” a completely controlled environment for growing spinach, produces on 1 acre of floor space what it takes 100 acres of fields to produce. Expenses, especially for electricity, are high, however, and the spinach produced costs about four times as much as washed California field spinach, the spinach commonly sold throughout the United States.

Which of the following, if true, best supports a projection that the spinach-growing facility near Chicago will be profitable?

We want an answer that says the users won't mind the high cost of factory Spinach.

A. Once the operators of the facility are experienced, they will be able to cut operating expenses by about 25 percent. -- This is a weakener since cost increase 400% while the reduction is hardly 25%.

B. There is virtually no scope for any further reduction in the cost per pound for California field spinach. -- doesn't talk about the cost reduction if factory produce.

C. Unlike washed field spinach, the hydroponically grown spinach is untainted by any pesticides or herbicides and thus will sell at exceptionally high prices to such customers as health food restaurants.-- This explains the reason that some overly health conscious faddists won't mind paying the fancy price of the factory price. The rationale is that it takes all kinds to make this word. This truly supports the projection.

D. Since spinach is a crop that ships relatively well, the market for the hydroponically grown spinach is no more limited to the Chicago area than the market for California field spinach is to California.-- If all Spinach can be shipped well, there is no advantage for factory spinach.

E. A second hydroponics facility is being built in Canada, taking advantage of inexpensive electricity and high vegetable prices. --This will increase the competition and put the first factory under more stress. This does not support the projection.
_________________

Pre Thinking: What would lead the Chicago facility to be profitable given its high production costs?
1. Maybe the savings on the small amount of land used outweigh the high expenses
2. Maybe the price of the spinach will be high enough to outweigh the high expenses


Almost irrelevant. Does this info make us confident that the facility will be profitable? No.


Our costs can't be reduced. This weakens the likelihood that we'll be profitable.


This is in line with my 2nd pre-thought. The high price of the product will outweigh the high costs. Strengthens the likelihood that we'll be profitable.


The market for this spinach is no more available than California spinach. So people may continue to buy California spinach instead of this new spinach. This weakens the likelihood that we'll be profitable.


Irrelevant information. We are only concerned with the profitability of the Chicago facility.

A- We don’t know anything about the selling price, so it is unclear what impact a reduction in operating costs could have. Consider this:
Hydroponic costs: $4
Regular costs: $1
Reduce Hydro by 25% = $3.. still costs more, but what about the profit?

It could be that the hydro is already profitable..
Costs: $4; Sale Price:$10000
Costs for regular: $1; Sales price: $2
Already significantly more profitable…

A cannot be correct.

B- Using the above. We don’t really know anything about the relationship between cost and selling price, so we cannot make any deduction about the profitability.
C- This tells us that the untainted hydro spinach will sell at exceptionally high prices to specific customers who prefer not to buy pesticide-tainted spinach. Thus, we could at least gain some faith that the projection – that spinach grown in the facility will be profitable – will actually hold true.
D- Basically, tells us that both hydro and non-hydro can be sold anywhere, but this doesn’t tell us how hydro can be profitable. Just because something can be sold elsewhere, doesn’t mean it will be demanded by those locations.
E- If anything, this weakens the argument because it says that a competitor (second facility) is opening up shop.

We have a new plant that produces spinach in completely controllable conditions. (lets call this 'controlled spinach'). Let's refer to the Californian field spinach as CFS.

So, we have a new factory that produces Controlled spinach. The only mentioned advantage of controlled spinach over CFS is that controlled spinach uses only 1 acre of land to produce X quantity of spinach (for instance), whereas the CFS requires 100 acres of land.

Controlled spinach has two disadvantages:

#1 Uses lots of electricity. Hence, electricity expenses are high
#2 Costs 4 times more than what CFS costs.

Given these two distinct advantages, we need to find an option that still shows that the Controlled spinach will be profitable.

(A) Once the operators of the facility are experienced, they will be able to cut operating expenses by about 25 percent.
- Even if costs were reduced by 25%, there is no way for us to know whether this reduction actually resulted in a profit. What if it were the case that even after the reduction, profits are not realized? There's to much to speculate about and hence (A) cannot be the right answer.

(B) There is virtually no scope for any further reduction in the cost per pound for California field spinach.
- There is no relation between the cost per pound of CFS and the profitability of controlled spinach. Hence, (B) is irrelevant.

(C) Unlike washed field spinach, the hydroponically grown spinach is untainted by any pesticides or herbicides and thus will sell at exceptionally high prices to such customers as health food restaurants. - this lets us know that there's no imminent danger (from pesticides/herbicides) that would threaten the existence of controlled spinach. Additionally, this option makes it certain that the controlled spinach will sell at HIGH PRICES. So, all this information suggests that there's a scope of profitability for controlled spinach. BINGO. this is the answer choice that we are looking for. Hence, (C) is the right answer.


(D) Since spinach is a crop that ships relatively well, the market for the hydroponically grown spinach is no more limited to the Chicago area than the market for California field spinach is to California.
- This means that the controlled spinach can be sold to many markets. But that itself does not tell us the kind of price at which these controlled spinach are sold. Moreover, additional shipping costs may deplete the profits. Hence, (D) is not what we are looking for. For this reason, eliminate D

(E) A second hydroponic facility is being built in Canada, taking advantage of inexpensive electricity and high vegetable prices - this certainly does not tell us anything about the profitability of the Chicago grown controlled spinach. Hence, eliminate E.

VeritasKarishma

We do not know how many health restaurants are there in the U.S? How do we know that the specific spinach facility could be profitable?

rahulrnair

There are many factors that determine the profitability of a venture. We cannot say whether it will be profitable or not. All we can do is "support" the projection that it will be profitable by saying that there is demand for such spinach even if its price is very high. Exactly how much the demand is we cannot say and don't need to. We are trying to improve the probability that the "factory" will be profitable. Will it be or not be, we cannot say.

Let's go through each statements-

Near Chicago a newly built hydroponic spinach “factory,” a completely controlled environment for growing spinach, produces on 1 acre of floor space what it takes 100 acres of fields to produce.
So i am saving a lot of floor space. I might be saving a lot of money just in case those floor space are rental ones.

Expenses, especially for electricity, are high
there are high expenses for electricity. Is it higher than the total cost of saved floor space i.e. 99 acres ? Not sure...let me read further

however, and the spinach produced costs about four times as much as washed California field spinach, the spinach commonly sold throughout the United States.
spinach produced costs cost me about four times as much as the field spinach. I think yes, high expenses of electricity outweigh the total saving of floor space.

What's the conclusion ?
In which scenario spinach-growing facility near Chicago will be profitable?

How do i sell this highly expensive spinach ? I only know that i have to be good at marketing if i am doing so. I have to convince people to take it. How do i do that ? Not sure...Let's read out the options.

(A) Once the operators of the facility are experienced, they will be able to cut operating expenses by about 25 percent.ok but is 25 percent expense cut enough to make the facility profitable ? I think no. Why ? Production costs are the total expense of doing business. Operating cost is just one of the factors in production costs.
Eliminate option A

(B) There is virtually no scope for any further reduction in the cost per pound for California field spinach.

-If there is no scope for cost reduction then it's not gonna help the facility to be profitable. Eliminate B

(C) Unlike washed field spinach, the hydroponically grown spinach is untainted by any pesticides or herbicides and thus will sell at exceptionally high prices to such customers as health food restaurants.
-Isn't it the advantage that how can i sell my expensive spinach to the end users to make my factory profitable ? Keep it.

D) Since spinach is a crop that ships relatively well, the market for the hydroponically grown spinach is no more limited to the Chicago area than the market for California field spinach is to California.
- so i am gonna sell Chicago spinach to other areas. Wait a minute, but the cost of spinach is still the same, in fact much higher after adding transportation cost. How am i gonna sell this now ? I can't see any buyer in this option. Eliminate option D.

(E) A second hydroponic facility is being built in Canada, taking advantage of inexpensive electricity and high vegetable prices.
-Do you mean you are selling these spinach now in Canada to make Chicago factory profitable ?
If yes, why do i need Chicago factory then? Can't i make more profit with just Canada factory spinach ? I am gonna have higher profit with one factory than setting both factories.
If no, Are you planning to transport spinach to Chicago ? What about transportation charges ?
In either options, i am going to get more expensive spinach. Eliminate option E

Option C

Profit = Revenue - Costs (Costs already covered). To increase profits, either increase the revenue or decrease the costs

Revenue = Sales = No. of Items Sold * Price/Item

Option (C) is the correct and direct answer, which says that the revenue can be increased as the spinach can sell at "unexceptionally high" prices.

Other Options : Irrelevant

Hello experts,

Can you please help me to understand choice D?

the market for the hydroponically grown spinach is no more limited to the Chicago area than the market for California field spinach is to California.

to me it means- market for H-grown spinach is not only limited to Chicago (they can sell on many more places) where as for california field spinach is limited to California.
H-grown has an advantage.

How should I break "no more", when I'll see this next time?

In this context "no more limited" works with "than" to express a comparison.

You know "more ... than." Well, here we have "no more ... than."

The point communicated is that first market is not any more limited to a certain area than the second market is limited to another certain area.

So, "no more" means "not any more."
_________________

KarishmaB MartyTargetTestPrep
Why A is incorrect?
(A) Once the operators of the facility are experienced, they will be able to cut operating expenses by about 25 percent.

When we think about profitability, we can increase sales or reduces expenses.
Now option A directs toward decreasing expenses in the future. This plan can lead to profitability for the factory.
Although we don't the exact relationship between expenses and sales, still this option acts as a mild strengthener.
I think we don't need 100% surety that the spinach-growing facility near Chicago will be profitable for the option to be considered correct.

I can't say it has no impact or weakens the conclusion.

If option (A) were this instead:
(A) Once the operators of the facility are experienced, they will be able to cut operating expenses drastically
Then this option would have a chance. But we are given that the operating expense will be cut by 25%. Currently the cost of production is 4 times the cost of production of the other spinach. Now if one of the costs is reduced by a mere 25% (so made 75% of its previous value), it will still stay exorbitant as compared.
Hence option (A) as given is not correct.

The correct option says "exceptionally high prices" and that is enough to strengthen the argument. Of course, as you mentioned, we don't have to PROVE it.