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V2#23

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V2#23 [#permalink] New post 08 Oct 2009, 14:55
A small orchard specializing in citrus fruits has been receiving fewer orders for oranges in the off season. Orchard owners expect demand to pick up in the coming weeks as harvest begins, but they are concerned about a neighboring orchard nearly three times their size. The neighboring orchard has announced plans to sell cases of oranges for 20% less than regular price in order to jump-start the season by attracting new business.

Which of the following, if true, points to the most serious flaw of the small orchard's plan to attract business by matching the prices of the competing orchard?

(C) 2008 GMAT Club - v02#23

* The small orchard has a dozen customers under contract to purchase the first oranges of the season and may anger them by not extending the discount to them.
* The small orchard does not have time to advertise its oranges at lower prices.
* The small orchard will reduce the number of oranges in each case to minimize losses incurred by matching prices.
* The large orchard has a larger inventory and is more able to take losses on initially discounted oranges.
* The large orchard will target a different market than the small orchard.

Situation: A small orchard desires to compete with a larger neighboring orchard.

Reasoning: Which point reveals the most serious flaw in the small orchard's plan? It can be determined from the passage that the large orchard has three times the inventory of the small orchard, and that they are looking to attract new business. It can also be inferred from the passage that the owners of the large orchard are confident that they are able to sell oranges at a discount and still remain solvent.

1. The concern of the orchards is in attracting new business, not satisfying existing customers. Additionally, customers under contract have likely already agreed to a non-discount price.
2. This item may be problematic, but does not address the concerns of the passage as a whole.
3. This approach is not a flaw in the plan, but a possible, potentially unethical, solution.
4. The large orchard's greater inventory will give them a flexibility that will outlast the small orchard. The small orchard could run out of stock before the large orchard has sold even a third of its oranges.
5. This item makes it sound as if the two orchards will not actually be in competition, but does not address the soundness of the small orchard's plan.

The correct answer is D.
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Manager
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Joined: 22 Jul 2009
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Kudos [?]: 189 [0], given: 18

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Re: V2#23 [#permalink] New post 08 Oct 2009, 15:02
It could be argued that D is not the correct answer.

If D is true, then the plan to match prices would make the small orchard lose money. Yes, it would be a bad plan, but the plan would not fail to attract business. It would have negative consequences, but it would succeed with its goal.

On the other hand, if B is true, then the plan to attract new business would fail.
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Re: V2#23   [#permalink] 08 Oct 2009, 15:02
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