Events & Promotions
|
|
GMAT Club Daily Prep
Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.
Customized
for You
Track
Your Progress
Practice
Pays
Not interested in getting valuable practice questions and articles delivered to your email? No problem, unsubscribe here.
Nov 2007:30 AM PST
-08:30 AM PST
Learn what truly sets the UC Riverside MBA apart and how it helps in your professional growth
Nov 2211:00 AM IST
-01:00 PM IST
Do RC/MSR passages scare you? e-GMAT is conducting a masterclass to help you learn – Learn effective reading strategies Tackle difficult RC & MSR with confidence Excel in timed test environment- Nov 23
11:00 AM IST
-01:00 PM IST
Attend this free GMAT Algebra Webinar and learn how to master the most challenging Inequalities and Absolute Value problems with ease. 
Nov 2510:00 AM EST
-11:00 AM EST
Prefer video-based learning? The Target Test Prep OnDemand course is a one-of-a-kind video masterclass featuring 400 hours of lecture-style teaching by Scott Woodbury-Stewart, founder of Target Test Prep and one of the most accomplished GMAT instructors.
17 Dec 2024, 11:01
Kudos
Bookmarks
The question says -
A certain company manufactures 2 processors : SP and AP. AP is higher priced and advanced. It is also more cost-efficient. However, analysts say that if the company replaces SP with AP and starts selling AP at a lower price (price level of SP), this will decrease the profits.
The question is to explain why do the analysts say that doing this would decrease the profits?
If we think about the question before going to the options, we should notice that the question essentially asks us to find and point out a reason for why should we not replace SP with AP even if AP is more cost-efficient in producing and is more advanced. That means, we might have to point out some kind of a flaw in AP or an advantage in SP over AP that makes it bad for the company to replace SP with AP.
Let's look at the options -
A - This tells that the materials used in AP are cheaper and more readily available. That is all the more reason we should replace. ELIMINATE
B - If AP can be produced faster, that means more units produced and more units sold, means more profit. Moreover, the price is not in question. ELIMINATE.
C - This just restates that AP is more cost-efficient than SP. ELIMINATE
D - This states that AP's investments were recouped quickly, which shows it's cost-effectiveness. ELIMINATE
E - This is the only option that states a flaw/drawback in AP. It says that AP requires more frequent updates and enhancements than SP. Which means that if we replace all SP with AP, we might need to invest more in updates and enhancements, basically post delivery service, which might cost more, hence, profits decline.
Final answer - E
A certain company manufactures 2 processors : SP and AP. AP is higher priced and advanced. It is also more cost-efficient. However, analysts say that if the company replaces SP with AP and starts selling AP at a lower price (price level of SP), this will decrease the profits.
The question is to explain why do the analysts say that doing this would decrease the profits?
If we think about the question before going to the options, we should notice that the question essentially asks us to find and point out a reason for why should we not replace SP with AP even if AP is more cost-efficient in producing and is more advanced. That means, we might have to point out some kind of a flaw in AP or an advantage in SP over AP that makes it bad for the company to replace SP with AP.
Let's look at the options -
A - This tells that the materials used in AP are cheaper and more readily available. That is all the more reason we should replace. ELIMINATE
B - If AP can be produced faster, that means more units produced and more units sold, means more profit. Moreover, the price is not in question. ELIMINATE.
C - This just restates that AP is more cost-efficient than SP. ELIMINATE
D - This states that AP's investments were recouped quickly, which shows it's cost-effectiveness. ELIMINATE
E - This is the only option that states a flaw/drawback in AP. It says that AP requires more frequent updates and enhancements than SP. Which means that if we replace all SP with AP, we might need to invest more in updates and enhancements, basically post delivery service, which might cost more, hence, profits decline.
Final answer - E
Bunuel
17 Dec 2024, 11:06
Kudos
Bookmarks
The answer would be B because it explains why the analysts chose to not reduce the price of AP. Since it is sale price is tied to it's percieved value, a drop in price would display a drop in value to consumers, leading to less sales.
Bunuel
17 Dec 2024, 11:16
Kudos
Bookmarks
A. The materials used in AP are more readily available and cheaper than those used in SP, which initially reduced manufacturing costs.
Irrelevant. Reason for cost efficiency of AP is out of context.
B. The production method for AP allows for faster output but the sale price for AP has traditionally been set higher due to perceived value. Irrelevant. Reason for higher price of AP is not required
C. The revenue generated from the higher-priced AP significantly exceeds the cost savings from its more efficient production compared to SP. Correct. If the additional revenue is lost because of transition, then revenue will decrease
D. The research and development costs for developing AP were recouped quickly due to initial high interest when it was first launched.
Initial cost is irrelevant
E. While AP is more cost-effective to produce, it requires more frequent updates and enhancements than SP. Out of context
Answer C
Irrelevant. Reason for cost efficiency of AP is out of context.
B. The production method for AP allows for faster output but the sale price for AP has traditionally been set higher due to perceived value. Irrelevant. Reason for higher price of AP is not required
C. The revenue generated from the higher-priced AP significantly exceeds the cost savings from its more efficient production compared to SP. Correct. If the additional revenue is lost because of transition, then revenue will decrease
D. The research and development costs for developing AP were recouped quickly due to initial high interest when it was first launched.
Initial cost is irrelevant
E. While AP is more cost-effective to produce, it requires more frequent updates and enhancements than SP. Out of context
Answer C
