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Increase profits during a prolonged slowdown

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Increase profits during a prolonged slowdown [#permalink]

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In order to increase profits during a prolonged slowdown in sales, the largest manufacturers of automobiles in the United States have instituted record-setting price increases on all their models. The manufacturers believe that this strategy will succeed, even though it is inconsistent with the normal relationship between price and demand.

The manufacturers' plan to increase profits relies on which of the following assumptions?

A Automobile manufacturers will, of necessity, raise prices whenever they introduce a new model.
B The smaller automobile manufacturers will continue to take away a large percentage of business from the largest manufacturers.
C The increased profit made on cars sold will more than compensate for any decline in sales caused by the price increases.
D New safety restraints that will soon become mandatory for all new cars will not be very costly for manufacturers to install.
E Low financing and extended warranties will attract many price-conscious consumers.
[Reveal] Spoiler: OA

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Re: Increase profits during a prolonged slowdown [#permalink]

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New post 09 Nov 2017, 10:48
kalra wrote:
In order to increase profits during a prolonged slowdown in sales, the largest manufacturers of automobiles in the United States have instituted record-setting price increases on all their models. The manufacturers believe that this strategy will succeed, even though it is inconsistent with the normal relationship between price and demand.

The manufacturers' plan to increase profits relies on which of the following assumptions?

A Automobile manufacturers will, of necessity, raise prices whenever they introduce a new model. - Irrelevant
B The smaller automobile manufacturers will continue to take away a large percentage of business from the largest manufacturers. - Does not give proper reason.
C The increased profit made on cars sold will more than compensate for any decline in sales caused by the price increases. - Correct
D New safety restraints that will soon become mandatory for all new cars will not be very costly for manufacturers to install. - Irrelevant
E Low financing and extended warranties will attract many price-conscious consumers.Does not indicate the assumption


Please refer to the reasoning marked above.
Hope it is clear.
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Re: Increase profits during a prolonged slowdown [#permalink]

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New post 11 Nov 2017, 11:15
kalra wrote:
In order to increase profits during a prolonged slowdown in sales, the largest manufacturers of automobiles in the United States have instituted record-setting price increaseson all their models. The manufacturers believe thatthis strategy will succeed, even though it is inconsistent with the normal relationship between price and demand.

The manufacturers' plan to increase profits relies on which of the following assumptions?

A Automobile manufacturers will, of necessity, raise prices whenever they introduce a new model.
B The smaller automobile manufacturers will continue to take away a large percentage of business from the largest manufacturers.
C The increased profit made on cars sold will more than compensate for any decline in sales caused by the price increases.
D New safety restraints that will soon become mandatory for all new cars will not be very costly for manufacturers to install.
E Low financing and extended warranties will attract many price-conscious consumers.


The highlighted part suggests that despite increase in Prince Profit maximisation might happen ( Though it is against the normal Price & Demand relationship)

None but (C) talks about the compensation for decreased sales due to increase in price, hence this is our answer!!!
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Re: Increase profits during a prolonged slowdown [#permalink]

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New post 13 Nov 2017, 23:36
In order to increase profits during a prolonged slowdown in sales, the largest manufacturers of automobiles in the United States have instituted record-setting price increases on all their models. The manufacturers believe that this strategy will succeed, even though it is inconsistent with the normal relationship between price and demand.

Type -assumption
Boil it down - In order to increase profits during sales slowdown , manufacturers have instituted record-setting price increase on all models
-- The net increase in profit because of price increase will be more than loss due to decline in sale caused by price increase

A Automobile manufacturers will, of necessity, raise prices whenever they introduce a new model. - Incorrect - price of all models has been increased
B The smaller automobile manufacturers will continue to take away a large percentage of business from the largest manufacturers.- Incorrect
C The increased profit made on cars sold will more than compensate for any decline in sales caused by the price increases. - Correct -- negate this and the argument falls apart
D New safety restraints that will soon become mandatory for all new cars will not be very costly for manufacturers to install. -- Irrelevant
E Low financing and extended warranties will attract many price-conscious consumers. - Irrelevant


Answer C
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Re: Increase profits during a prolonged slowdown   [#permalink] 13 Nov 2017, 23:36
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