What I don't understand from the explaination was how do they know for sure the profit margin is not "high"? What if the cost of product rose in other countries as well? What if the companies sell at higher price but high quality products therefore the profit margin is still as high as before? You know what I go about this!! There is no guarantee at all about profit here reguarding to the cost if we don't contribute to other factors. Therefore, this cannot be a conclusion. What do you think? This is question 95 from OG by the way.
Well, first of all I would say that their response is by far the BEST response of the bunch, so it's clearly the right one. You make good points, but don't argue for any of the other responses. To answer your questions...
1. it doesn't matter if the profit margins were high or not, they weren't high enough to absorb the additional costs or their ability to compete wouldn't have been affected.
2. Again, it doesn't matter if the prices rose in other countries, because the question TELLS you that the company in question had a limited ability to compete.
I think, generally, you are missing the fact that we are told that the export-dependent firm's ability to compete was severely limited. This tells you that they incurred problems due to newly expensive inputs. All of your recovery schemes allow them to not incur problems, but we already know that they did. I hope that makes sense.