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Corporate Officer: Last year was an unusually poor one for

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Re: Corporate Officer: Last year was an unusually poor one for our [#permalink]

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New post 14 Sep 2015, 19:14
mikemcgarry wrote:
sudhirmadaan wrote:
Hi Mike , thanks for responding back. Actually my concern was with C and E, but reading again and again your explanation above made things clearer. E is actually out of scope, because we need to provide critic to evidence and evidence is about chemical only. But i did not understand your point in
if the pharmaceutical division, which previously constituted 70% of the profits, had a sour year, profits for the whole company would be down,(understood) and all the smaller divisions would occupy a much larger percentage of that much smaller pie. This goes to the core of the problem(not clear how does this relate to main point of the passage)

Dear sudhirmadaan,
Excellent question, my friend. :-) I will try to explain.

Let's think about real numbers. Suppose, in previous years, the profits were $10 million. The pharmaceutical division produced 70% of those, or $7 million dollars. Let's assume that was true last year. Last year, the chemical division contributed 10%, or $1 million in profits. Let's say a third fictional Division X accounted for the other $2 million in profits, or 20%.

Now, this year, the pharmaceutical division had an off year. Let's make this extreme, with $7 million going down to $1 million. Assume that the other two divisions remained unchanged: the chemical division still contributed $1 million, and Division X producing $2 million. Now, the total profits is only $4 million. The chemical division accounts for 25% of this, and Division X accounts for 50%.

OK, with all this in mind, what I was saying was that when the pharmaceutical division decreases, it decreases the size of the whole pie, because it was a very big piece of that pie. This means that the same cash value contribution from the smaller divisions (e.g. chemical and Division X) will account for higher percentages because the total has gotten smaller. In the scenario I proposed, chemical went from 10% to 25%, and Division X went from 20% to 50%, even though they contributed the exact same dollar amount in both years. Those same dollar amounts represent higher percentages, only because the total has gone down.

This is the core of the fallacy of the argument. The Corporate Officer suggest that the company is in good shape, because the chemical division went from 10% to 25%, as if that represents growth, but as my numerical scenario demonstrates, that percentage increase might represent not a single dime of increase in profits, but just the fact that the total profits decreased.

In this numerical scenario, the total profits went from $10M to $4M. There's absolutely nothing positive about that. The fact that the $1M from the chemical division used to be only 10% of $10M and now is 25% of $4M is irrelevant: it does not mean that any more profits are arising, or any other increase will offset the losses in the pharmaceutical division. It's a completely fallacious suggestion, and choice (C) goes to the core of this fallacy.

Does all this make sense?
Mike :-)


Thanks a tonn. Moment i read this question, overall profits are down is popping in my mind m but did not relate that, but your explanation did . thanks a lot.
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Re: Corporate Officer: Last year was an unusually poor one for our [#permalink]

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New post 17 Sep 2015, 12:06
shivamchugh89 wrote:
Hi Mike

I still doubt the explanation and the OA given here. In your explanation of C you have mentioned that "Just because percent goes up does NOT mean that overall profits went up". Does this not totally fit into option D as well. According to you for D previous share was 10% and this years share is 25% which is an improvement. Here also just because %age went up does not mean that profits also went up. Last year the profit could be 1000 Dollars and chem div share could be 100 dollars, whereas if this year it is 100 dollars,even with 25% the profits could still be lower. IMO C does not still really fit into the solution.
Please correct me if I am wrong.

Thanks

Dear shivamchugh89,
I'm happy to respond. :-)

Remember that this is an official question, from GMAT Prep. It's the nature of official GMAT CR questions that, while only one answer choice is definitively correct, the other four are tempting and, from a certain perspective, might seem correct. Our job on the GMAT CR is NOT to try to find the special perspective that will make a tempting wrong answer appear correct. Our job is to discern which is the best answer. This can be very tricky.

Here's the prompt again.
Corporate Officer: Last year was an unusually poor one for our pharmaceutical division, which has traditionally contributed about 70 percent of the corporation’s profits. It is therefore encouraging that there is the following evidence that the chemical division is growing stronger: it contributed 25 percent of the corporation’s profit up from 10 percent the previous year.
As well have discussed on this thread, and as you seem to understand, the screaming fallacy in what the Corporate Officer says is the conflation of percentage increase with dollar amount increase. He equates those two, and they may not be equivalent. As I demonstrated with the numerical examples above, percents of certain departments could go up, even if dollar amount went down.

Now, the specific question:
On the basis of the facts stated which of the following is the best critique of the evidence presented above?
Some of the incorrect answers might be indirect critiques, or might be ambiguous. The best will be the answer that zeros in on the screaming fallacy in the prompt.

I'll just analyze the two choices you cited:
(C) The percentage of the corporation’s profits attributable to the chemical division could have increased even if that division’s performance had not improved.
AHA! The difference of a percent increase vs. a dollar increase! This answer says: a percent increase may not equal a dollar increase, and that is precisely the oversight of the Corporate Officer. This answer choice makes a direct bull's eye hit on the major fallacy of the prompt.

(D) The information cited does not make it possible to determine whether the 25 percent share of profits cited was itself an improvement over the year before.
What does the author mean by "improvement"? Does he mean a percentage increase or a dollar increase? If the person saying this is of the same mindset as the Corporate Officer, then they both will agree that 25% is an improvement over 10%. If the person saying this has the same understanding as the speaker of (C), then this would be an equivalent objection. The trouble is: there's ambiguity. It could be another valid devastating objection, as (C) is, but it depends on the reading we give to the word "improvement" --- we don't know how the speaker intended that word. This choice leaves us with questions.

A maybe, possible objection is not as good as a solid, unambiguous objection. That's why (C) is a better answer than (D), and the best answer overall.

Does all this make sense?
Mike :-)
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Re: Corporate Officer: Last year was an unusually poor one for our [#permalink]

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New post 02 Jul 2017, 11:49
the question looks bazaar indeed, but it turns out that the right answer is all about that the argument fails to show the causal relation for the chemical division.
The pharmaceutical division is just unrelated fact.
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Corporate Officer: Last year was an unusually poor one for [#permalink]

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New post 04 Sep 2017, 04:25
Corporate Officer: Last year was an unusually poor one for our chemical division, which has traditionally contributed about 60 percent of the corporation's profits. It is therefore encouraging that there is the following evidence that the pharmaceutical division is growing stronger: it contributed 45 percent of the corporation's profits, up from 20 percent the previous year.

On the basis of the facts stated, which of the following is the best critique of the evidence presented above?

Boil it down - The pharmaceutical division is growing stronger since its % share of corporation's profits has increased from 20 to 45 %.
- It experienced ABSOLUTE growth ?
What if - the total profits of the entire corporation are down. The entire pie might be smaller and therefore the Pharma profits might stay the same and yet be a larger percentage of a smaller pie.

(A) The increase in the pharmaceutical division's contribution to corporation profits could have resulted largely from the introduction of single, important new product. - Irrelevant - it does not dispute the claim that pharmaceutical division is growing stronger

(B) In multidivisional corporations that have pharmaceutical divisions, over half of the corporation's profits usually come from the pharmaceuticals. - Irrelevant - we are concerned about this company only.

(C) The percentage of the corporation's profits attributable to the pharmaceutical division could have increased even if that division's performance had not improved. - Correct

(D) The information cited does not make it possible to determine whether the 20 percent share of profits cited was itself an improvement over the year before. - Incorrect - we are only concerned in comparing the last 2 years

(E) The information cited does not make it possible to compare the performance of the chemical and pharmaceutical divisions in of the percent of total profits attributable to each. - may be true, but its not the issue

Answer C
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Corporate Officer: Last year was an unusually poor one for   [#permalink] 04 Sep 2017, 04:25

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