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# Tariffs on imported manufactured goods

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Re: Tariffs on imported manufactured goods [#permalink]

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08 Jun 2012, 02:20
nifoui wrote:
Here is a 700-800 level question from MGMAT:

Country X imposes heavy tariffs on imported manufactured goods. 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.

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.
B: Company Y currently produces no goods outside its home country.
C: A sustainable market for Company Y's goods currently exists in Country X.
D: Company Y's home country does not impose tariffs on imported goods.
E: Labor costs in Country X are lower than those in Company Y's home country.

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 company Y exports goods to country X, due to the increased impose of tariffs on imported goods from Country X's side, the over all profit margin would decrease for Company Y if it continues to do so. Hence Company Y has decided to set up its plant in Country X.

A: Company Y will be able to obtain all the necessary permits to open a factory in Country X. - Out of scope of the current context - Incorrect
B: Company Y currently produces no goods outside its home country. - It is irrelevant to the conclusion made in the passage - Incorrect
C: A sustainable market for Company Y's goods currently exists in Country X. - The move of Company Y to set up a plant in Country X is justifiable only when there is a considerable market in Country X for its product - Correct
D: Company Y's home country does not impose tariffs on imported goods. - The passage talks about Country X rather than the home country of Company Y - Irrelevant - Incorrect
E: Labor costs in Country X are lower than those in Company Y's home country. - The point of discussion is not about the labour costs - Out of scope - Incorrect
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Re: Tariffs on imported manufactured goods [#permalink]

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12 Jun 2012, 05:44
TommyWallach wrote:
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!

Thanks for the detailed explanation tommy..
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Re: Tariffs on imported manufactured goods [#permalink]

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17 Feb 2013, 21:21
nifoui wrote:
Here is a 700-800 level question from MGMAT:

Country X imposes heavy tariffs on imported manufactured goods. 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.

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.
B: Company Y currently produces no goods outside its home country.
C: A sustainable market for Company Y's goods currently exists in Country X.
D: Company Y's home country does not impose tariffs on imported goods.
E: Labor costs in Country X are lower than those in Company Y's home country.

Overhead cost for Coun Y is "Heavy tariffs" => Coun Y decides to open the factory in CounX to avoid tariffs

C:COULD increase profit in long term.

GAP:There is demand for the goods by Coun Y.
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Re: Tariffs on imported manufactured goods [#permalink]

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10 Mar 2013, 10:52
can someone please explain if we can consider something, which already exists in the premise, as assumption....Here in this case we already know that the market for the goods exist from the very fact that the country Y intends to shift the manufacturing facility to country X for products it has already been producing in country Y and selling in country X
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Re: Tariffs on imported manufactured goods [#permalink]

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29 Jun 2013, 11:01
I chose E because the stimulus says that the company Y already made products for Country X so surely it must have a market there.

Please explain why my reasoning is flawed, so that I don't make a similar mistake again.
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20 Jul 2013, 02:08
I think answer is C mainly because of the word "Sustainability". If sustainability is not there, it could be wrong. Am i correct?
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Re: Tariffs on imported manufactured goods [#permalink]

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20 Jul 2013, 07:31
Ravi9535 wrote:
I think answer is C mainly because of the word "Sustainability". If sustainability is not there, it could be wrong. Am i correct?

C is not correct ONLY because has that word in it, however its presence is very important.

The passage states that "Company Y has determined that it could increase its profits in the long term by (...)"

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

C: A sustainable market for Company Y's goods currently exists in Country X.

If you eliminate the word from C, the answer losses strength.
NOW a market exists, but we cannot be sure that this market will be present in the future anymore (what we can infer with the word "sustainable"); so the long term profits could not be guaranteed.

Hope my point is clear
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Re: Tariffs on imported manufactured goods [#permalink]

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20 Jul 2013, 21:03
yes C is implied in the problem stateent but it is not 1005 clear , for y to have started producing in X which is a commitment to sell only in X so it should be first c is established for moving to country x and then other economic assumptions

narangvaibhav wrote:
TommyWallach wrote:
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!

Thanks for the detailed explanation tommy..
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03 Aug 2013, 01:03
Gaurav2013fall wrote:
There is one more point that nobody seemed to touched on. Company is concerned about long term profit. Answer choice C provides sustainable market to the company. Hence, long term profitability can be ensured.

All of the other answer choices are the next- steps involved in the process , C talks about "Sustainability" and that is how it equates Y's concern.
Agreed !! Thanks
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03 Aug 2013, 22:33
For me the key word was "long term". If the company is planning for profits in long term, it simply indicates that the formalities to set up a company and all is over. It is just to see if we can continue to make profits and the word sustainable in choice C completes the long term requirement.

For a while i was tempted by the labor cost but again the keyword long term held me back.

Hope i helped.
Thanks,
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13 Jul 2014, 06:04
Can we apply the negation rules for this assumption type question?
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19 Jul 2014, 01:14
Tommy, the passage says "increase its profits", which means they are already making profit but that gets reduced because the company is paying a heavy tax from it too. Hence, the plan.

If the key to this passage is staying close to it, then the word "increase" cant be ignored as well.
That way C loses value.
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Re: Tariffs on imported manufactured goods [#permalink]

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04 Aug 2014, 02:00
Country X imposes heavy tariffs on imported manufactured goods. 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.

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.
B: Company Y currently produces no goods outside its home country.
C: A sustainable market for Company Y's goods currently exists in Country X.
D: Company Y's home country does not impose tariffs on imported goods.
E: Labor costs in Country X are lower than those in Company Y's home country.

According to me we need to understand that we are talking in business terms.

Option A is not the option as the company Y is already selling its products in country X, so profits are already present. What can be done in order to increase the profits.
Option A was close but not the correct one.

Option B:- Out of scope

Option D:- Out of scope

Option E:- Profits can be increased by reducing the costs or increasing the revenue or prices. So even if the labor costs are lower in country X, first thing that is important is the there should be sales in that country. In short good enough demand.
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Re: Tariffs on imported manufactured goods [#permalink]

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11 Aug 2014, 10:53
A is incorrect. The argument is "if opening new factor in X" -> "therefore more profit", while A is needed to actually realize "more profit", it is not a necessary condition to make the argument valid.

nifoui wrote:
I know, I replied A too, but the real answer is C...
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Re: Tariffs on imported manufactured goods [#permalink]

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15 Jun 2015, 01:40
Y is already making profits, it wants to increase profit, which means it has an established market in country X [is it an assumption? I am getting all these facts directly from the passage, not assuming] SO to me the ans is E
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Re: Tariffs on imported manufactured goods [#permalink]

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04 Nov 2016, 12:46
TommyWallach wrote:
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!

Hi Tommy,

Negation C says -> a sustainable market does not exist currently
It could develop after the company has established the company for whatever reasons (proximity to local consumers leading to better consumer understanding, etc.)

Negation A says -> the company is not able to secure all necessary permits
This definitely breaks the argument because the company wont be able to set up shop in X in the first place.

A, to me sounds a more convincing than C
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Re: Tariffs on imported manufactured goods [#permalink]

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05 Nov 2016, 07:52
perfervid89 wrote:
TommyWallach wrote:
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!

Hi Tommy,

Negation C says -> a sustainable market does not exist currently
It could develop after the company has established the company for whatever reasons (proximity to local consumers leading to better consumer understanding, etc.)

Negation A says -> the company is not able to secure all necessary permits
This definitely breaks the argument because the company wont be able to set up shop in X in the first place.

A, to me sounds a more convincing than C

The conclusion is that the company could increase its profits in the long term by opening a factory in Country X. If I have understood Tommy's explanation correctly, he means to say that the conclusion can also be reworded as if the company could open a factory in country X, they would be able to increase its profit. It does not matter how difficult it is or even if it is possible to open a factory. On this basis he suggests elimination of option A.

As for option C, that the market exists is already implied in the passage. Whether it is sustainable is the point. If the existing market is not sustainable, then the company cannot make profits in the long term.
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Re: Tariffs on imported manufactured goods [#permalink]

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05 Nov 2016, 10:43
Isn't option C sort of given since stem states below?

As per the question stem: "by opening a factory in Country X to manufacture the goods that it currently produces in its home country for sale in Country X"

Now for the goods that are already sold in Country X, it needs to increase the profits.

If the labor costs are lower than it will achieve that objective.

Negate: If labor costs are not lower then it won't increase its profits.

Is the above reasoning flawed?
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Re: Tariffs on imported manufactured goods [#permalink]

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05 Nov 2016, 13:37
warriorguy wrote:
Isn't option C sort of given since stem states below?

As per the question stem: "by opening a factory in Country X to manufacture the goods that it currently produces in its home country for sale in Country X"

Now for the goods that are already sold in Country X, it needs to increase the profits.

If the labor costs are lower than it will achieve that objective.

Negate: If labor costs are not lower then it won't increase its profits.

Is the above reasoning flawed?

In option C, the word "sustainable" is the point. That part is not given in the passage. If the market is not sustainable, the company cannot increase profit (it may even have to close down operations in future.)

As for option E, the objective of opening the factory is to avoid import tariff, thereby increasing profit. Labor cost is not discussed in the passage. Even if the labor cost is not lower in country X, the company might still increase profit because it would avoid the "heavy tariff" on imports.
Re: Tariffs on imported manufactured goods   [#permalink] 05 Nov 2016, 13:37

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