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# Complaints that milk bottlers take enormous markups on the

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Director
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Complaints that milk bottlers take enormous markups on the [#permalink]

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16 Mar 2007, 10:33
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Complaints that milk bottlers take enormous markups on the bottled milk sold to consumers are most likely to arise when least warranted by the actual spread between the price that bottlers pay for raw milk and the price at which they sell bottled milk. The complaints occur when the bottled-milk price rises, yet these price increases most often merely reflect the rising price of the raw milk that bottlers buy from dairy farmers. When the raw-milk price is rising, the bottlersâ€™ markups are actually smallest proportionate to the retail price. When the raw-milk price is falling, however, the markups are greatest.
If all of the statements above are true, which one of the following must also be true on the basis of them?
(A) Consumers pay more for bottled milk when raw-milk prices are falling than when these prices are rising.
(B) Increases in dairy farmersâ€™ cost of producing milk are generally not passed on to consumers.
(C) Milk bottlers take substantially greater markups on bottled milk when its price is low for an extended period than when it is high for an extended period.
(D) Milk bottlers generally do not respond to a decrease in raw-milk prices by straightaway proportionately lowering the price of the bottled milk they sell.
(E) Consumers tend to complain more about the price they pay for bottled milk when dairy farmers are earning their smallest profits.

Please give reasons for ur choices...
Manager
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16 Mar 2007, 18:05
Price:
Bottled-milk = RM(raw milk)+ markup.

"...When the raw-milk price is falling, however, the markups are greatest...."
Bottled-milk = RM goes down + markup goes up.

(D) Milk bottlers generally do not respond to a decrease in raw-milk prices by straightaway proportionately lowering the price of the bottled milk they sell.
VP
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16 Mar 2007, 18:08
I picked D because to me it's the only choice that can be true from the facts stated. We know from the passage that when the raw-milk price is falling, the markups are the greatest. Therefore, milk bottlers generally do not respond to a decrease in raw-milk prices by straightaway proportionately lowering the price of the bottled milk they sell.

A - false because we do not know anything about the price of milk
B - false because it contradicts the facts in the paragraph
C - false because we do not have any information about the length of periods
E - false because we don't know anything about profits. We know that markups are greater when the raw milk prices go down but we have no info about how it translates into profits.
Director
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16 Mar 2007, 22:27
Thanks nervousgmat...the answer is D indeed...nice explanation.
Director
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17 Mar 2007, 01:12
Another no brainer : D !
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"Education is what remains when one has forgotten everything he learned in school."

17 Mar 2007, 01:12
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