Bunuel wrote:
A major automobile manufacturer is planning to increase its production of vehicles due to an unexpected period of strength in the economy. The company CEO believes that now is the best time to add to the company’s supply of vehicles, when the strength in the markets makes this decision economically feasible. At this time, many of the primary supplies needed to build the cars have artificially low prices, and the auto manufacturer hopes to produce the cars while the cost-value ratio is still low.
Based on the information contained within the passage, which of the following, if true, most supports the decision by the auto manufacturer?
(A) The automobile manufacturer’s stock is expected to rise within the next few months due to the economic strength.
(B) A major producer of car batteries is expected to go out of business within six months, leaving few car battery suppliers for auto manufacturers.
(C) A recent study indicates that the steel used by the auto manufacturer is expected to increase considerably in price over the next few months.
(D) The auto manufacturer is planning to merge with another auto manufacturer that has a considerable number of surplus vehicles.
(E) The cost of oil is expected to rise, a factor that will make consumers less likely to buy new cars.
OFFICIAL EXPLANATION
Overview:Question describes a situation in which the CEO of an automobile manufacturer announces plans to increase vehicle production due to an unexpectedly strong period in the economy. The passage adds that supplies for building vehicles currently have low prices and that the auto manufacturer hopes to use this time to produce vehicles in a cost-effective way. The implication is that this period of economic strength will not last and that the supplies will go up in price. This would make the vehicles more expensive for the manufacturer to build in the future, so by building them now the manufacturer will have the freedom to reduce production or even lower the selling price of the vehicles when an economic downturn strikes. To select the correct answer, the student needs to consider these details as the prevailing justification for the CEO’s decision to increase vehicle production.
The Correct Answer:C If a recent study indicates that the steel used by the auto manufacturer is expected to increase in cost over the next few months, it would justify the auto manufacturer’s decision to build cars while the economy is good and the cost of supplies is low. Answer choice (C) is correct.
The Incorrect Answers:A An increase in the price of the auto manufacturer’s stock should do nothing to hinder or contribute to its decision to increase automobile production. In fact, the rise in the stock price is likely to occur as a result of the CEO’s announcement, so this is likely an effect and not a cause of the decision to increase production. It is possible that the CEO is making the announcement to increase production in order to bolster a failing stock price; but as there is nothing in the passage to suggest specifically that the company is hoping to improve its stock price, this cannot reasonably be inferred as a cause of the decision. Answer choice (A) is incorrect.
B Although answer choice (B) could be a good option if it stated clearly that the car batteries in question are those used by the auto manufacturer, this answer choice does not make any such statement. As it is, the loss of the car battery company might have absolutely no effect on the auto manufacturer. Answer choice (B) is incorrect due to insufficient detail.
D The decision to merge with another auto manufacturer has no clear connection to the company’s decision to produce more cars, based on the information within the passage. The fact that the second auto manufacturer has a surplus of vehicles would more likely motivate the original auto manufacturer to put an increase in production on hold. Therefore, answer choice (D) provides no justification for the CEO’s announcement.
E As in answer choice (D), the expected rise in the price of oil – with the accompanying decrease in the expected purchase of new vehicles – is far more likely to motivate the CEO to put a hold on production and not to increase it immediately. It might be argued that a reduced incentive to buy new cars in the future would motivate the company to increase production now in the hopes that customers would buy them now. But this line of reasoning does not address the CEO’s explicitly stated concern to build cars while the necessary supplies are low in cost.. Answer choice (E) is incorrect.