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.