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Because competition has dramatically lowered margins in the industry,

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Kudos [?]: 110 [0], given: 33

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Re: Because competition has dramatically lowered margins in the industry, [#permalink]

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New post 18 Aug 2017, 07:41
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mikemcgarry - hey Mike , can you show some path to us, I chose option A, just like the majority of folks. Can you provide some expertise please. Thanks
_________________

we shall fight on the beaches,
we shall fight on the landing grounds,
we shall fight in the fields and in the streets,
we shall fight in the hills;
we shall never surrender!

Kudos [?]: 110 [0], given: 33

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Magoosh GMAT Instructor
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Joined: 28 Dec 2011
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Re: Because competition has dramatically lowered margins in the industry, [#permalink]

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New post 18 Aug 2017, 14:27
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bkpolymers1617 wrote:
mikemcgarry - hey Mike , can you show some path to us, I chose option A, just like the majority of folks. Can you provide some expertise please. Thanks

Dear bkpolymers1617,

I'm happy to respond. :-)

This question is particularly brilliant--it's almost at the LSAT LR level. My only criticism is that it might be a notch too hard for the GMAT. Nevertheless, it is a wonderful question. Many Veritas questions are very good.

The argument has a clever and sneaky jump in the middle. First we get:
Because competition has dramatically lowered margins in the industry, Euroquest must reduce personnel expenditures by at least 15% over the next year in order to remain solvent.
Reducing the personnel expenditures by less than 15% definitely is not going to cut it. Maybe 15% will be enough, or maybe deeper cuts will be requires.
Then we get a funny leap:
In order to do so, Euroquest would have to cut entire divisions and benefits programs such that it would reduce personnel expenditures by a full 25% over the next year.
The implication is that, for whatever reason, it seems that there is no possibility of small cuts. For example, it might not be possible to give employees "partial health insurance"--either you give it to them, or you don't. Thus, of all the things available to cut, it appears that the smallest is worth 25%. That's the smallest cut that would "reduce personnel expenditures by at least 15%." Would this be enough to keep the company solvent?

This is a funny thing about the business world, and it highlights why it's very important to have an understanding of the business world for the GMAT. What happens when a company starts to tank? Sometimes, adjusting expenditures is enough to keep it afloat and it soon returns to a profitable state. Sometimes, the drop in revenue is due to the wild success of a competitor, and the company's revenue will continue to plummet further as this other company makes gains. Sometimes, the loss of revenue is due to a very poor product or a scandal of some kind, and sometimes a spate of lawsuits complicates the struggling company's position, dragging it further down. Sometimes, a company has the bad fortune of going into a struggling period just before the entire economy goes into a recession, where struggling companies are the first to crash. Thus, will reducing personnel expenditures by 25% guarantee the survival of the company? No. It's necessary, but not sufficient, for survival.

Now, let's look at (A) & (B).
A. Euroquest reduces personnel expenditures by 25% over the next year it will remain solvent.
This answer is a huge trap for people who don't appreciate the dynamic nature of the modern business world. Reducing the personnel expenditures by 25% is necessary for survival--without doing this, they definitely will not remain solvent. On the other hand, this is not sufficient for survival: doing this may or may not guarantee that they will keep their doors open. Thus, this is not a clear and certain implication.

B. If Euroquest cannot reduce personnel expenditures by 25% over the next year it will not remain solvent.
Yes! This captures the correct logical relationship. It is absolutely necessary for Euroquest to make these 25% cuts. We don't know whether doing this will be enough, but it can't get away with not doing this.

Does all this make sense?
Mike :-)
_________________

Mike McGarry
Magoosh Test Prep

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Kudos [?]: 8152 [0], given: 100

Manager
Manager
User avatar
G
Joined: 01 Sep 2016
Posts: 170

Kudos [?]: 110 [0], given: 33

GMAT 1: 690 Q49 V35
GMAT ToolKit User Reviews Badge CAT Tests
Re: Because competition has dramatically lowered margins in the industry, [#permalink]

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New post 19 Aug 2017, 01:55
mikemcgarry wrote:
bkpolymers1617 wrote:
mikemcgarry - hey Mike , can you show some path to us, I chose option A, just like the majority of folks. Can you provide some expertise please. Thanks

Dear bkpolymers1617,

I'm happy to respond. :-)

This question is particularly brilliant--it's almost at the LSAT LR level. My only criticism is that it might be a notch too hard for the GMAT. Nevertheless, it is a wonderful question. Many Veritas questions are very good.

The argument has a clever and sneaky jump in the middle. First we get:
Because competition has dramatically lowered margins in the industry, Euroquest must reduce personnel expenditures by at least 15% over the next year in order to remain solvent.
Reducing the personnel expenditures by less than 15% definitely is not going to cut it. Maybe 15% will be enough, or maybe deeper cuts will be requires.
Then we get a funny leap:
In order to do so, Euroquest would have to cut entire divisions and benefits programs such that it would reduce personnel expenditures by a full 25% over the next year.
The implication is that, for whatever reason, it seems that there is no possibility of small cuts. For example, it might not be possible to give employees "partial health insurance"--either you give it to them, or you don't. Thus, of all the things available to cut, it appears that the smallest is worth 25%. That's the smallest cut that would "reduce personnel expenditures by at least 15%." Would this be enough to keep the company solvent?

This is a funny thing about the business world, and it highlights why it's very important to have an understanding of the business world for the GMAT. What happens when a company starts to tank? Sometimes, adjusting expenditures is enough to keep it afloat and it soon returns to a profitable state. Sometimes, the drop in revenue is due to the wild success of a competitor, and the company's revenue will continue to plummet further as this other company makes gains. Sometimes, the loss of revenue is due to a very poor product or a scandal of some kind, and sometimes a spate of lawsuits complicates the struggling company's position, dragging it further down. Sometimes, a company has the bad fortune of going into a struggling period just before the entire economy goes into a recession, where struggling companies are the first to crash. Thus, will reducing personnel expenditures by 25% guarantee the survival of the company? No. It's necessary, but not sufficient, for survival.

Now, let's look at (A) & (B).
A. Euroquest reduces personnel expenditures by 25% over the next year it will remain solvent.
This answer is a huge trap for people who don't appreciate the dynamic nature of the modern business world. Reducing the personnel expenditures by 25% is necessary for survival--without doing this, they definitely will not remain solvent. On the other hand, this is not sufficient for survival: doing this may or may not guarantee that they will keep their doors open. Thus, this is not a clear and certain implication.

B. If Euroquest cannot reduce personnel expenditures by 25% over the next year it will not remain solvent.
Yes! This captures the correct logical relationship. It is absolutely necessary for Euroquest to make these 25% cuts. We don't know whether doing this will be enough, but it can't get away with not doing this.

Does all this make sense?
Mike :-)



Dear Mike- First of all the post is just brilliant. I always admire the way you reciprocate to students' problems. Your posts are the most comprehensive of the lot. Always to the point and well articulated. Indeed, this one was a tough one. I learnt something very important through this question. Please correct me if you feel I am still on the wrong track.

If a statement says something like this- Mr. A should study at least 1000 hours to excel on the GMAT.


Then we can infer the following from this statement-
1. Studying for 1500 Hours will not guarantee Mr. A success on the GMAT. (Again, it might be possible that Mr. A is a laggard and needs to supplement his prep with additional practice despite studying for 1000 hours.)- So again, the statement that "Studying 1500 hours would guarantee success on the GMAT would fall short)
2. Mr A studied for 750 hours, so would not be successful on the GMAT.
(Now, this means that if he does not follow the prerequisite of studying at least 1000 hours, then he is definitely not going to succeed on the GMAT.)

Now, similarly in the above question, reducing personal expenditure was just one of the prerequisites for attaining solvency. However, it was not a guarantee that such a reduction was itself assure solvency. But again, not adhering to the prerequisite that happens to be 25% in this case would definitely not help in the solvency process.(as you mentioned that the company might not be able to cut social costs could partially and hence company's relevant figure might would be 25% instead of 15%)

SO MOVING FORWARD, I LL ENSURE THAT I AM LOOKING FOR CONTRAPOSTIVES CLEARLY. Thanks so much Mike :)
_________________

we shall fight on the beaches,
we shall fight on the landing grounds,
we shall fight in the fields and in the streets,
we shall fight in the hills;
we shall never surrender!

Kudos [?]: 110 [0], given: 33

Expert Post
Magoosh GMAT Instructor
User avatar
G
Joined: 28 Dec 2011
Posts: 4367

Kudos [?]: 8152 [0], given: 100

Re: Because competition has dramatically lowered margins in the industry, [#permalink]

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New post 21 Aug 2017, 09:22
bkpolymers1617 wrote:

Dear Mike- First of all the post is just brilliant. I always admire the way you reciprocate to students' problems. Your posts are the most comprehensive of the lot. Always to the point and well articulated. Indeed, this one was a tough one. I learnt something very important through this question. Please correct me if you feel I am still on the wrong track.

If a statement says something like this- Mr. A should study at least 1000 hours to excel on the GMAT.


Then we can infer the following from this statement-
1. Studying for 1500 Hours will not guarantee Mr. A success on the GMAT. (Again, it might be possible that Mr. A is a laggard and needs to supplement his prep with additional practice despite studying for 1000 hours.)- So again, the statement that "Studying 1500 hours would guarantee success on the GMAT would fall short)
2. Mr A studied for 750 hours, so would not be successful on the GMAT.
(Now, this means that if he does not follow the prerequisite of studying at least 1000 hours, then he is definitely not going to succeed on the GMAT.)

Now, similarly in the above question, reducing personal expenditure was just one of the prerequisites for attaining solvency. However, it was not a guarantee that such a reduction was itself assure solvency. But again, not adhering to the prerequisite that happens to be 25% in this case would definitely not help in the solvency process.(as you mentioned that the company might not be able to cut social costs could partially and hence company's relevant figure might would be 25% instead of 15%)

SO MOVING FORWARD, I LL ENSURE THAT I AM LOOKING FOR CONTRAPOSTIVES CLEARLY. Thanks so much Mike :)

Dear bkpolymers1617,

I'm happy to respond. Yes, with your statement about "Mr. A," you have drawn the correct conclusions.

Mike :-)
_________________

Mike McGarry
Magoosh Test Prep

Image

Image

Kudos [?]: 8152 [0], given: 100

Re: Because competition has dramatically lowered margins in the industry,   [#permalink] 21 Aug 2017, 09:22

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