Despite the fact that they are selling their microprocessors at a defi

Question

Despite the fact that they are selling their microprocessors at a deficit, Computers North America will further lower their retail prices next month. The company expects the price drop to increase sales by twenty percent. Because the revenue from those additional sales will more than compensate for the revenues lost from the price drop, the company thinks that their microprocessors will turn a profit as soon as next year.

Which of the following, if true, provides the most support for Computers North America's expectation of making a profit after further lowering the price of their microprocessors?

A. Despite being in the microprocessors market for years, Computers North America has never before lowered the price of their microprocessors.

B. The price reduction will not affect microprocessors sold for commercial use, a market where customers can already procure microprocessors at a discount when purchased in bulk.

C. Next year, Computers North America expects to release a new and improved model of microprocessor on the market.

D. Computers North America can increase its microprocessor production by twenty percent without incurring any additional expenses.

E. The microprocessors that Computers North America produces are currently more expensive than comparable microprocessors produced by other companies.

arun6765 · Answer

IMO- ans B

If Computers North america marketing strategy didn't affect commercial market where microprocessor can be purchased in bulk and thus will affect their next year sales since consumer already have stock of same, then expectation of making a profit can be viable.

Correct me if I am wrong as no other option lends a firm support to the argument.

Masterscorp · Answer

I will vouch for D even though I'm not sure.

It is said that the costs won't increase even though the production goes up by 20%. This will lower the production cost per unit. If we assume that a price reduction will lead to increasing sales the company will be able to increase its profits as the units sold will increase while the profit margin might only drop slightly.

I am aware that this explanation is a bit vague but this is a forum so I'm open to discuss this

swagatamoitra · Answer

IMO- Answer D 
clearly, the plan can ONLY be profitable if they produce in bulk and sell also that bulk.
Option D gives that choice, if they can produce 20% more device at no additional cost,
then they can recover the per unit loss in profit by selling more units at no additional production cost.

SonalSinha803 · Answer

C. Next year, Computers North America expects to release a new and improved model of microprocessor on the market.

IMO C. Only this option gives a reason to customers to buy the computers with improved model of microprocessor at lower price. Rest seem irrelevant.

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sobby · Answer

Will go with D here ...extra cost in production can cause dip in the profit..

Posted from my mobile device

manasveek · Answer

CNA, the company, is going to reduce price in expectation to increase sales.
If any company is taking this decision then it must have balanced its producing costs.

D correctly states this scenario.

by POE,

A. Despite being in the microprocessors market for years, Computers North America has never before lowered the price of their microprocessors.--  okay, so suddenly CNA is dropping prices, but does this gurantee that people will buy it more
to compensate reduced prices(?). too many assumptions we need to make if this be true and support the conclusion. so out.

B. The price reduction will not affect microprocessors sold for commercial use, a market where customers can already procure microprocessors at a discount when purchased in bulk. -- IMO, if anything this is not strengthening.
 if microprocessors are available at cheap prices when you buy in bulk, people wont notice the price drop in unit pieces
and may always opt for buying in bulk.

C. Next year, Computers North America expects to release a new and improved model of microprocessor on the market. 
-- Again we dont know if people are going to buy this improved model so as to its sales compensate for reduced costs.

D. Computers North America can increase its microprocessor production by twenty percent without incurring any additional expenses.  --This is what we thought. as CNA is balancing its production costs, it can safely experiment with 'reduced costs'. D looks better than all other options.
 
E. The microprocessors that Computers North America produces are currently more expensive than comparable microprocessors produced by other companies.-  out of scope

Hence D is the best answer.

Meghakothari98 · Answer

please explain why D should be preferred over E ?

aragonn · Answer

manasveekr has explained it. Anyways I will try to provide explanation ASAP.

vasuca10 · Answer

SonalSinha803 Option C cannot be strengthener answer choice as we cant be assured that improved version of micro processor shall be bought by consumers and it shall be able to compensate the revenue lost on discount.

Meghakothari98 Option E is a weakener infact because if price of Micro processors that Computers North America produces is higher than comparable micro processors of other companies, customer may not prefer to buy the same. Hence there is a huge possibility that sales may not improve as pricing is also an important parameter for many of customers while buying a product.

I will try to explain by POE

Which of the following, if true, provides the most support for Computers North America's expectation of making a profit after further lowering the price of their microprocessors?

A. Despite being in the microprocessors market for years, Computers North America has never before lowered the price of their microprocessors. Incorrect as merely reducing a price cannot give assurance that customer shall buy more of its products

B. The price reduction will not affect microprocessors sold for commercial use, a market where customers can already procure microprocessors at a discount when purchased in bulk. Incorrect as Firstly this answer choice is only speaking about microprocessors sold for commercial use. Again as per se this answer choice as in bulk purchase there is discount available which is not available when buying in individual units so people would opt for buying in bulk and may ignore the price reduction done when buying in individual units

C. Next year, Computers North America expects to release a new and improved model of microprocessor on the market. Option C cannot be strengthener answer choice as we cant be assured that improved version of micro processor shall be bought by consumers and it shall be able to compensate the revenue lost on discount

D. Computers North America can increase its microprocessor production by twenty percent without incurring any additional expenses. CORRECT as production is increased without having any additional burden of expenses, profitability would improve with increases sales and no additional burden of expenses

E. The microprocessors that Computers North America produces are currently more expensive than comparable microprocessors produced by other companies. Option E is a weakener infact because if price of Micro processors that Computers North America produces is higher than comparable micro processors of other companies, customer may not prefer to buy the same. Hence there is a huge possibility that sales may not improve as pricing is also an important parameter for many of customers while buying a product.

Kindly give kudos if my explanation helps

SonalSinha803 · Answer

But does D in any way indicate that profit will increase ?? It might remain constant as the sales would not go up even after decrease in the price. So how can you guarantee that actually their plan of increasing sales will increase profit. In this argument, I believe we are supposed to stick to the plan of increasing profit through sales.

Hence, I am not actually convinced with D.

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Hence, I am not actually convinced with D.

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vasuca10 · Answer

SonalSinha803
Option D states that if Computers North America can produce 20% more microprocessors at no additional cost, then they can easily recover the per unit loss in profit by selling more units at no additional production cost.

I hope now you are convinced with my explanation

Kindly give kudos if convinced with my explanation

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Despite the fact that they are selling their microprocessors at a defi

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