HOT Competition 1 Sep/8AM: The owners of Hole-In-One Donuts, a combina

Veritas Prep Explanation

The correct answer is B.

“Whether Hole-In-One’s owners considered the potential financial impacts of taking a controversial political stand before sharing their position online” is interesting, but it does not clearly bear on the potential financial impacts experienced by Hole-In-One Donuts.

Perhaps the owners considered these impacts but decided that they would be minor – the answer to “whether the ensuing controversy will be detrimental to Hole-In-One’s profits” might be “yes.” Or perhaps the owners considered, decided that the impacts would be majorly detrimental, but ultimately decided that the principle was more important than the money. Or perhaps the owners considered, decided that the impacts would be negligible, but were simply wrong. There is no reason to assume that the owners are infallible authorities when it comes to the impact that a political controversy might have on their company’s bottom line.

Then again, perhaps the owners considered, expected no negative impacts, and were correct – producing a “no” answer to the underlying question.

Or perhaps the owners didn’t consider the impacts at all, but again we know nothing about “whether the ensuing controversy will be detrimental to Hole-In-One’s profits.” The answer could still, just as easily, be “yes” or “no.”

It’s simply not possible to take B are solid evidence in any direction.

Answer A is relevant in a very direct way. If Hole-In-One’s customers share the boycotters’ views, then these customers may be more apt to join the boycott and thereby reduce Hole-In-One’s profits. If the customers do not share these views, and if, to our knowledge, only “people opposed to this political view” are going to boycott, then there is no clear reason to expect that these customers would join in and no reason to think that a boycott by people who presumably were not patrons of Hole-In-One to begin with would reduce Hole-In-One’s profits.

Answer C suggests a different way in which the boycott may or may not harm Hole-In-One’s profits. If enough new customers will be drawn to Hole-In-One in response to the political stand, then the net impact of the “ensuing controversy” should not be negative. Otherwise, we may expect that the controversy will indeed negatively impact Hole-In-One’s profits.

Answer D is circumstantial but still useful. If “comparable businesses in Sealett… have taken similar stands,” then their resulting experiences have some relevance to what we may expect will happen to Hole-In-One. If those other businesses lost revenue, then this suggests that boycotts may have been effective and/or that these views may be unpopular enough in Sealett to cause customers to go elsewhere (without bringing in sufficient new customers to compensate). If, instead, other businesses have not suffered adverse impacts on revenue, then it seems likelier that Hole-In-One will not suffer revenue – and thus profit – losses either.

Answer E offers another mechanism by which Hole-In-One may avoid adverse consequences. Even if the boycott has a negative impact on revenue, the question ultimately asks about “Hole-In-One’s profits.” If Hole-In-One reaps costs savings through reduced advertising expenditures in light of the free publicity, and if those cost savings outweigh any reductions in revenue, then Hole-In-One should not expect to suffer reduced profits. However, if the controversy does not enable Hole-In-One to cut costs by enough to counteract lost revenues, then we may expect that the controversy will cause Hole-In-One’s profits will decline.