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Two years ago, the cost of the raw material used in a

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WE: Engineering (Health Care)
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Two years ago, the cost of the raw material used in a [#permalink]

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New post 17 Oct 2010, 11:18
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Difficulty:

  55% (hard)

Question Stats:

55% (02:23) correct 45% (01:30) wrong based on 409 sessions

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Two years ago, the cost of the raw material used in a particular product doubled after an earthquake disrupted production in the region where the material is mined. Since that time, the company that makes the product has seen its profit margins decline steadily. Aiming to improve profit margins, the company's head of engineering has decided that he must find a new source for the raw material.

Which of the following, if true, would cast the most doubt on the validity of the head of engineering's decision?

a. New competitors have entered the market every six months for the past two years, resulting in price wars that have progressively driven down revenues across the market.

b. Although the earthquake occurred two years ago, the region's mines have still not recovered to pre-earthquake production capacity.

c. There are several other regions in the world where the raw material is mined, but those regions do not produce as much of the raw material as the current source region.

d. The company could use a completely different raw material to make its product.

e. Earthquakes are common in the region where the material is mined, which tends to have an earthquake once every 5 years, on average.


Source: MGMAT CAT 3
[Reveal] Spoiler: OA
4 KUDOS received
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Schools: Chicago (Booth) - Class of 2013
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Re: Cost of raw material [#permalink]

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New post 17 Oct 2010, 12:30
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Which of the following, if true, would cast the most doubt on the validity of the head of engineering's decision?

a. New competitors have entered the market every six months for the past two years, resulting in price wars that have progressively driven down revenues across the market. - this is an alternate explanation for why the company's profit margins
are decreasing , so if this is true it will render the engineer decision to be irrelevant. Finding a new source won't help in this case.


b. Although the earthquake occurred two years ago, the region's mines have still not recovered to pre-earthquake production capacity. - this actually strengthen the engineer decision since finding and alternate source is a must because it seems that the
current one is not recovering.

c. There are several other regions in the world where the raw material is mined, but those regions do not produce as much of the raw material as the current source region. - this might be the closest to a weaken the question, but pay attention to the start of this sentence - There are several - this does not mean that there are no several other regions where we can mine as much raw material

d. The company could use a completely different raw material to make its product. - also strengthen. we are told the material is
not irreplaceable making the decision logical.

e. Earthquakes are common in the region where the material is mined, which tends to have an earthquake once every 5 years, on average. - also sort of indirectly strengthen, finding a new source where there are no earthquakes is better
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Re: Cost of raw material [#permalink]

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New post 17 Oct 2010, 13:15
Thanks Rafael!
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Re: Two years ago, the cost of the raw material used in a [#permalink]

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New post 28 Aug 2014, 09:43
Hello from the GMAT Club VerbalBot!

Thanks to another GMAT Club member, I have just discovered this valuable topic, yet it had no discussion for over a year. I am now bumping it up - doing my job. I think you may find it valuable (esp those replies with Kudos).

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Re: Two years ago, the cost of the raw material used in a [#permalink]

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New post 14 Sep 2015, 00:23
Hello from the GMAT Club VerbalBot!

Thanks to another GMAT Club member, I have just discovered this valuable topic, yet it had no discussion for over a year. I am now bumping it up - doing my job. I think you may find it valuable (esp those replies with Kudos).

Want to see all other topics I dig out? Follow me (click follow button on profile). You will receive a summary of all topics I bump in your profile area as well as via email.
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Re: Two years ago, the cost of the raw material used in a [#permalink]

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New post 05 Dec 2015, 13:01
Agree with A.
The assumptions are that only the increased costs of raw materials have reduced the profit margins.

to weaken the solution of head of engineering, we must identify the answer choice that would provide evidence that in fact, it is not only the costs of raw materials that decreased the profit margins.

a. New competitors have entered the market every six months for the past two years, resulting in price wars that have progressively driven down revenues across the market.
looks good. provides alternative reason why the profit margins are still decreasing.

b. Although the earthquake occurred two years ago, the region's mines have still not recovered to pre-earthquake production capacity.
this doesn't weaken the argument. it even strengthens by saying that the production is not recovered, and thus, the price are still up. thus, by identifying alternatives, the costs can be decreased.

c. There are several other regions in the world where the raw material is mined, but those regions do not produce as much of the raw material as the current source region.
regardless of how much they produce, the costs might be decreased by diversification.

d. The company could use a completely different raw material to make its product.
well, it could. is there a substitution for the material? if yes, will the product be of the same quality? will the clients actually buy the product?
since it raises a lot of questions, it cannot be the correct answer.

e. Earthquakes are common in the region where the material is mined, which tends to have an earthquake once every 5 years, on average.
irrelevant.
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Re: Two years ago, the cost of the raw material used in a [#permalink]

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New post 28 Apr 2016, 08:21
In Revevnue,Profit,Sales or any of the financial statistical questions i generally write

Profits = Revenue-Cost

Son as in this case Profits needs to be increased, and Cost is taken as the sole reason.

To weaken we just need to find out any other reason, may be Revenue(the Most worldly reason for Revenue Loss is Sales,Industry or Economy).

Hence Answer A states Revenue might have gone down as the Competitors came and hence Sales were constrained.

I hope that Helps.

If it does then......Beam in the Kudos!! Scottie!!
Re: Two years ago, the cost of the raw material used in a   [#permalink] 28 Apr 2016, 08:21
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