Complaints that milk bottlers take enormous markups on the bottled mil

Question

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 bottlers’ 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 farmers’ 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.

KissGMAT · Answer

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 bottlers’ 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.  CAn be true. the argument talks about "  propotionate to retail price  " and not actual price. 
(B) Increases in dairy farmers’ cost of producing milk are generally not passed on to consumers.  Incorrect. It might be passed on but not propotionately. (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. In correct.Extended period is not being discussed. 
(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. Correct,the markups are greatest. 
(E) Consumers tend to complain more about the price they pay for bottled milk when dairy farmers are earning their smallest profits.  naah

PriyankaPalit7 · Answer

Can anyone please explain why D, not C is the correct answer?

D-> The argument does not say that the price of bottled milk is NOT reduced when there is a decrease in the raw-milk price. It just says that the markup is greatest at that time. This greatest markup could also be attained by decreasing the price of the bottled milk.
Eq. If the price of bottle milk was $10 for every month in the last year. Every time the price of raw-milk falls from $3 to $1.5 , the price of bottled milk is reduced to $9.5. The highest markup is still achieved even after decreasing the price.

alexkozhura · Answer

PriyankaPalit7

C states that bottlers take substantially greater markups on bottled milk when its price (i.e.  the price of the bottled milk ) is low is low for long periods of time. That's wrong for two reasons:

1. The argument speaks about the relation between bottlers' markups and the price for  raw milk , not bottled milk.

2. It doesn't make really make sense logically if bottlers enjoy the greatest markups when the price for their product (bottled milk) is the lowest.

Abhishek009 · Answer

To further that..........

(C) mentions : markups on bottled milk when its price is low for an    extended period   than when it is high for an   extended period.

Now the issue here is we must be least concerned about the duration of the Markup...
 
 Rather , this is a must be True type question where our Primary focus must be finding out the Assumption and checking it....

We find (D) clearly is the assumption of the Arguement, if we negate this condition, the entire Arguement falls apart, check the condition using this option...
 
  Hence (D) wins over (C)

Kritisood · Answer

Hi
Could someone pls explain why A and E are incorrect?

CrackverbalGMAT · Answer

Hi Kriti

Option (A)  states that  consumers pay more  for milk when raw-milk prices are falling than they do when the prices are rising. What we know for sure from the stimulus is the following:

"When the raw-milk price is rising, the bottlers’ markups are actually smallest proportionate to the retail price. When the raw-milk price is falling, however, the markups are greatest."

Therefore, the difference between the cost for the bottlers and the selling price of bottled milk  as a proportion of the retail price  is the metric that is high when prices are falling and low when prices are rising. The price that the consumers pay refers to the retail price of bottled milk. They are different metrics and what we know about one says nothing with certainty about the other. For example, consider the following scenario:

Cost of raw milk = 90
Retail price = 100
Markup = (100-90)/100 = 10% (I'm assuming no other costs, which, while inaccurate, serves the purpose here)

Cost of raw milk = 80 (Lower than earlier)
Retail price = 90 (Lower than earlier)
Markup = (90-80)/90 = 11.1% (Higher than earlier)

The above scenario is perfectly consistent with the stimulus, but inconsistent with option (A).

Option (E)  states: "Consumers tend to complain more about  the price they pay for bottled milk  when dairy farmers are earning their smallest profits". This, however, is inconsistent (at best, inconclusive) with the information given in the stimulus, which states the following:

" 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..."

Therefore, the consumers' complaints are about the profits made by the bottlers and not about the actual price of milk. It is entirely plausible that the consumers might be understanding about the increase in prices but concerned about what they perceive to be increased profiteering by the bottlers. This scenario is consistent with the stimulus but inconsistent with Option (E).

Hope this helps.

daniformic · Answer

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 bottlers’ 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?

My 2 cents:

1° Premise: 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
2° Premise: 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 bottlers’ markups are actually smallest proportionate to the retail price. When the raw-milk price is falling, however, the markups are greatest

So, consumers complaint about the enormous markups on the bottled milk sold...(read 1° Premise) and i know that the higher is the price of the raw milk, the less is the markup and viceversa. Thanks to this, i know that when the price of the raw milk is higher, the price of the bottled-milk rises, too. But when the price of the raw milk is lower, we can suppose, from the 2° Premise, that the price of the bottled-milk remains the same.

(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. -> BINGO

Hope it helps

PS Sorry for my bad English

sayan640 · Answer

MartyMurray   KarishmaB  Would you like to share your thoughts on this question ?

KarishmaB · Answer

Imagine what is taking place and what the author is saying.

Bottlers buy milk from farmers, bottle it up and sell to people. Say at $20 per bottle. In this, say $10 is cost of milk, and $5 is cost of packaging and distribution with $5 as markup. (25% of the selling price)

Now if the price of raw milk from farmers rises by $5 to become $15, the bottler will increase the price of the bottle to $25 (since the increase in price pretty much reflects the increase in price of raw milk). This is when people complain about enormous markups taken by bottlers. But here the mark up is still $5 which is 20% of the selling price. 
So when cost is rising, the bottlers' mark up is a smaller proportion of the retail price.

What happens when the cost of raw milk is going down? The bottlers pay less for buying raw milk say cost of milk becomes $5 but now the mark ups are the greatest. This means that the bottlers do not immediately reduce the price of the bottles proportionately to get the same markup of 25%. They retain the higher pricing of the bottles (for a while at least).

So which of the following must be true?

(A) Consumers pay more for bottled milk when raw-milk prices are falling than when these prices are rising.

No. We know that mark ups are higher when price of raw milk is falling. Consumers pay more when the raw milk prices are rising ($25 compared with $20)

(B) Increases in dairy farmers’ cost of producing milk are generally not passed on to consumers.

They are. We are given that the bottlers pass on the increased cost of raw milk 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.

We do not know what happens over extended periods. We know what happens when the prices are rising and we know what happens when the prices are falling but what happens when the price remains high over an extended period or low over an extended period, we do not know.

(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.

Correct. We know that their mark ups are the highest when prices are falling. It means they do not proportionately decrease prices immediately. They may adjust the pricing over time but at the time when they are falling, the adjustments are not taking place straightaway.

(E) Consumers tend to complain more about the price they pay for bottled milk when dairy farmers are earning their smallest profits.

We do not know anything about the profits earned by farmers.

Answer (D)

Complaints that milk bottlers take enormous markups on the bottled mil

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Complaints that milk bottlers take enormous markups on the bottled mil

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