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Which of the following logically completes the passage below

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BSchool Thread Master
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Which of the following logically completes the passage below [#permalink] New post 19 Nov 2012, 22:39
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A
B
C
D
E

Difficulty:

  35% (medium)

Question Stats:

69% (01:51) correct 31% (01:42) wrong based on 39 sessions
Which of the following logically completes the passage below ?

One name-brand cereal manufacturer is about to reduce wholesale prices for its cereals by 20% because consumers have been switching from its cereals to cheaper store brands. The success of this strategy relies on the assumption that supermarkets will pass on all of the savings by lowering the prices they charge consumers for the manufacturers' cereals. Although supermarkets usually pass on such savings, in this case it is likely that supermarkets will not do so because ............................................................

a) Several other name-brand cereal manufacturers are about to reduce the wholesale prices of their cereals
b) the average price per box of name-band cereals has significantly increases over the past 10 years.
c) total annual sales of cereal - including both name-brand and store-brand cereals -have increased over the past 10 years.
d) supermarkets currently make far more profit on sales of store-brand cereals than on sales of name-brand cereals
e) the current prices of manufacturers' cereals are comparable to the prices of name-brand cereals produced by other cereal manufacturers.


Please discuss each answer choice.

Thanks
[Reveal] Spoiler: OA

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Re: One name-brand cereal manufacturer : GMAT PREP [#permalink] New post 20 Nov 2012, 00:59
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a) Several other name-brand cereal manufacturers are about to reduce the wholesale prices of their cereals: Incorrect. Even if other brand name manufacturers reduce the price, there is no reason why store cannot pass the saving.
b) the average price per box of name-band cereals has significantly increases over the past 10 years: Incorrect. This will impact the manufacturer not the stores. So, irrelevant.
c) total annual sales of cereal - including both name-brand and store-brand cereals -have increased over the past 10 years: Incorrect. Even if the sales increased, there is no reason why store cannot pass the saving.
d) supermarkets currently make far more profit on sales of store-brand cereals than on sales of name-brand cereals: Correct. If the store is earning more profit on sales of their brand why will they want to lose sale and earn less profit.
e) the current prices of manufacturers' cereals are comparable to the prices of name-brand cereals produced by other cereal manufacturers: Incorrect. Comparison of brand to other brand is irrelevant, let's keep it to manufacturers' brand vs stores' brand. Irrelevant.
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Re: One name-brand cereal manufacturer : GMAT PREP [#permalink] New post 20 Nov 2012, 01:05
Vineetk wrote:
a) Several other name-brand cereal manufacturers are about to reduce the wholesale prices of their cereals: Incorrect. Even if other brand name manufacturers reduce the price, there is no reason why store cannot pass the saving.
b) the average price per box of name-band cereals has significantly increases over the past 10 years: Incorrect. This will impact the manufacturer not the stores. So, irrelevant.
c) total annual sales of cereal - including both name-brand and store-brand cereals -have increased over the past 10 years: Incorrect. Even if the sales increased, there is no reason why store cannot pass the saving.
d) supermarkets currently make far more profit on sales of store-brand cereals than on sales of name-brand cereals: Correct. If the store is earning more profit on sales of their brand why will they want to lose sale and earn less profit.
e) the current prices of manufacturers' cereals are comparable to the prices of name-brand cereals produced by other cereal manufacturers: Incorrect. Comparison of brand to other brand is irrelevant, let's keep it to manufacturers' brand vs stores' brand. Irrelevant.


Can you explain what it exactly means when it says "pass on the savings to consumers" ? That is what is actually confusing me.
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Re: One name-brand cereal manufacturer : GMAT PREP [#permalink] New post 20 Nov 2012, 01:21
ankit0411 wrote:
Vineetk wrote:
a) Several other name-brand cereal manufacturers are about to reduce the wholesale prices of their cereals: Incorrect. Even if other brand name manufacturers reduce the price, there is no reason why store cannot pass the saving.
b) the average price per box of name-band cereals has significantly increases over the past 10 years: Incorrect. This will impact the manufacturer not the stores. So, irrelevant.
c) total annual sales of cereal - including both name-brand and store-brand cereals -have increased over the past 10 years: Incorrect. Even if the sales increased, there is no reason why store cannot pass the saving.
d) supermarkets currently make far more profit on sales of store-brand cereals than on sales of name-brand cereals: Correct. If the store is earning more profit on sales of their brand why will they want to lose sale and earn less profit.
e) the current prices of manufacturers' cereals are comparable to the prices of name-brand cereals produced by other cereal manufacturers: Incorrect. Comparison of brand to other brand is irrelevant, let's keep it to manufacturers' brand vs stores' brand. Irrelevant.


Can you explain what it exactly means when it says "pass on the savings to consumers" ? That is what is actually confusing me.


This means that whenever store receives any discounts from manufacturer, it passes it to the customer but in this case it will not. The manufacturer is not reducing the price on MRP but on wholesale prices. While store is now getting the product at 20% lower price, it will not give discount to the customer (i.e. will still sell at MRP).
BSchool Thread Master
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Joined: 28 May 2012
Posts: 138
Location: India
Concentration: General Management, Strategy
GPA: 3.33
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Kudos [?]: 24 [0], given: 11

Re: One name-brand cereal manufacturer : GMAT PREP [#permalink] New post 20 Nov 2012, 02:54
Vineetk wrote:
ankit0411 wrote:
Vineetk wrote:
a) Several other name-brand cereal manufacturers are about to reduce the wholesale prices of their cereals: Incorrect. Even if other brand name manufacturers reduce the price, there is no reason why store cannot pass the saving.
b) the average price per box of name-band cereals has significantly increases over the past 10 years: Incorrect. This will impact the manufacturer not the stores. So, irrelevant.
c) total annual sales of cereal - including both name-brand and store-brand cereals -have increased over the past 10 years: Incorrect. Even if the sales increased, there is no reason why store cannot pass the saving.
d) supermarkets currently make far more profit on sales of store-brand cereals than on sales of name-brand cereals: Correct. If the store is earning more profit on sales of their brand why will they want to lose sale and earn less profit.
e) the current prices of manufacturers' cereals are comparable to the prices of name-brand cereals produced by other cereal manufacturers: Incorrect. Comparison of brand to other brand is irrelevant, let's keep it to manufacturers' brand vs stores' brand. Irrelevant.


Can you explain what it exactly means when it says "pass on the savings to consumers" ? That is what is actually confusing me.


This means that whenever store receives any discounts from manufacturer, it passes it to the customer but in this case it will not. The manufacturer is not reducing the price on MRP but on wholesale prices. While store is now getting the product at 20% lower price, it will not give discount to the customer (i.e. will still sell at MRP).



That totally makes sense now ! all other options look irrelevant after re-reading the question carefully.

Thanks,
Ankit
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Re: One name-brand cereal manufacturer : GMAT PREP [#permalink] New post 20 Nov 2012, 18:01
I got D after 1'47'' after eliminating A, B, C, E which are irrelevant.
In such time, I am not sure whether D is right or not.
BSchool Thread Master
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Joined: 28 May 2012
Posts: 138
Location: India
Concentration: General Management, Strategy
GPA: 3.33
WE: Information Technology (Retail)
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Kudos [?]: 24 [0], given: 11

Re: One name-brand cereal manufacturer : GMAT PREP [#permalink] New post 21 Nov 2012, 07:34
paladin3828 wrote:
I got D after 1'47'' after eliminating A, B, C, E which are irrelevant.
In such time, I am not sure whether D is right or not.


The answer is D- If super markets are making profits on store brand cereals why would they want the sales of one-brand cereal to increase ( that is by passing the savings to the customer ) . This would definitely reduce profit on their own brand right ?
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Re: One name-brand cereal manufacturer : GMAT PREP   [#permalink] 21 Nov 2012, 07:34
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Which of the following logically completes the passage below

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