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555-605 Level|   Business|   Long Passage|                                    
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ag153
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Manufacturers have to do more than build large manufacturing 03 Apr 2022, 10:45
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Thanks for a well structured response.

This helps though I want to know whether we can exclude the second para out of the picture to find the primary purpose like you’ve done ? You’ve only considered the first para and not the second. What would it be if we also had to consider the second one?


MartyTargetTestPrep
ag153
Really do not understand Q5 Choice E.

MartyTargetTestPrep pls answer it the TTP way. Really struggling with E. I think the whole passage is an answer to the "why" in E. I am not sure why passage 2 will not fit into this "why". Moreover, the passage is saying why the large plants wont lead to economies of scale and the reason is their lack of focus on intangible. I rejected A and was confused b/w C and E before choosing E
Hi ag153.

Question 5 choice (E) is a trap choice that SEEMS to be supported by the passage but actually goes in a direction different from what the passage says.

To see why (E) is not correct, we can carefully compare what the passage says with what (E) says.

The first sentence of the passage says the following:

"Manufacturers have to do more than build large manufacturing plants to realize economies of scale."

Then, continuing to read the passage, we see that the remainder of the passage to a large degree expands on what the first sentence says and adds the idea that, for realizing economies of scale, something else is needed in addition to large manufacturing plants. That something else is intangible capital.

So, what is the point of the passage? It's that, while manufacturing plants are necessary for realizing economies of scale, they are not sufficient for realizing economies of scale. So, "Manufacturers have to do more": they have to invest in intangible capital.

Now, let's look at question 5 choice (E).

(E) explain why large manufacturing plants usually do not help manufacturers achieve economies of scale

Notice that what choice (E) says is quite different from what the passage says. Whereas the point of the passage is that manufacturing plants ARE NECESSARY BUT NOT SUFFICIENT for realizing economies of scale, choice (E) is saying that the point of the passage is that manufacturing plants DON"T HELP AT ALL with realizing economies of scale. So, whereas the direction of what the passage says is that the plants have a role in achieving economies of scale, choice (E) is saying that the point is that the plants have no such role.

Thus, choice (E) is clearly incorrect.

Now, let's consider choice (A).

(A) point out the importance of intangible capital for realizing economies of scale in manufacturing

While there's more we could do to support choice (A), what we have discussed here indicates that choice (A) accurately describes the primary purpose of the passage.

The correct answer is (A).
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Manufacturers have to do more than build large manufacturing 09 May 2022, 05:30
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MartyTargetTestPrep
ag153
Really do not understand Q5 Choice E.

MartyTargetTestPrep pls answer it the TTP way. Really struggling with E. I think the whole passage is an answer to the "why" in E. I am not sure why passage 2 will not fit into this "why". Moreover, the passage is saying why the large plants wont lead to economies of scale and the reason is their lack of focus on intangible. I rejected A and was confused b/w C and E before choosing E
Hi ag153.

Question 5 choice (E) is a trap choice that SEEMS to be supported by the passage but actually goes in a direction different from what the passage says.

To see why (E) is not correct, we can carefully compare what the passage says with what (E) says.

The first sentence of the passage says the following:

"Manufacturers have to do more than build large manufacturing plants to realize economies of scale."

Then, continuing to read the passage, we see that the remainder of the passage to a large degree expands on what the first sentence says and adds the idea that, for realizing economies of scale, something else is needed in addition to large manufacturing plants. That something else is intangible capital.

So, what is the point of the passage? It's that, while manufacturing plants are necessary for realizing economies of scale, they are not sufficient for realizing economies of scale. So, "Manufacturers have to do more": they have to invest in intangible capital.

Now, let's look at question 5 choice (E).

(E) explain why large manufacturing plants usually do not help manufacturers achieve economies of scale

Notice that what choice (E) says is quite different from what the passage says. Whereas the point of the passage is that manufacturing plants ARE NECESSARY BUT NOT SUFFICIENT for realizing economies of scale, choice (E) is saying that the point of the passage is that manufacturing plants DON"T HELP AT ALL with realizing economies of scale. So, whereas the direction of what the passage says is that the plants have a role in achieving economies of scale, choice (E) is saying that the point is that the plants have no such role.

Thus, choice (E) is clearly incorrect.

Now, let's consider choice (A).

(A) point out the importance of intangible capital for realizing economies of scale in manufacturing

While there's more we could do to support choice (A), what we have discussed here indicates that choice (A) accurately describes the primary purpose of the passage.

The correct answer is (A).
Show more

Hello MartyTargetTestPrep
Thank you for the explanation.
I did the same mistake and chose E, I do get it why E is wrong.
but, I think the primary purpose of the passage is broder than choice A, which is just to tell importance of tangible capital.
The passage sets a platform with the statement- Manufacturers have to do more than build large manufacturing plants to realize economies of scale-
then says there are other things too like- throughput and tangible, intengible capitals and ends paragraph 1. It then begins para 2 by supporting the end of para 1 and telling importance of tangible capital.
If passage had just wanted to say the importance of tangible capital, It would have done so by only mention para 2.
I mean choice A is a subset of primary purpose.
many times author only considers final para as the primary purpose, when there is actually a bigger role to fulfill.
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Manufacturers have to do more than build large manufacturing 18 May 2022, 19:59
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The Official Guide for GMAT Review, 13th Edition, 2012

Practice Question
Question No.: RC 37 ~ 41
Page: 382
[align=justify][box_out][box_in]Manufacturers have to do more than build large manufacturing plants to realize economies of scale. It is true that as the capacity of a manufacturing operation rises, costs per unit of output fall as plant size approaches “minimum efficient scale,” where the cost per unit of output reaches a minimum, determined roughly by the state of existing technology and size of the potential market. However, minimum efficient scale cannot be fully realized unless a steady “throughput” (the flow of materials through a plant) is attained. The throughput needed to maintain the optimal scale of production requires careful coordination not only of the flow of goods through the production process, but also of the flow of input from suppliers and the flow of output to wholesalers and final consumers. If throughput falls below a critical point, unit costs rise sharply and profits disappear. A manufacturer’s fixed costs and “sunk costs” (original capital investment in the physical plant) do not decrease when production declines due to inadequate supplies of raw materials, problems on the factory floor, or inefficient sales networks. Consequently, potential economies of scale are based on the physical and engineering characteristics of the production facilities—that is, on tangible capital—but realized economies of scale are operational and organizational, and depend on knowledge, skills, experience, and teamwork—that is, on organized human capabilities, or intangible capital.

　　The importance of investing in intangible capital becomes obvious when one looks at what happens in new capital-intensive manufacturing industries. Such industries are quickly dominated, not by the first firms to acquire technologically sophisticated plants of theoretically optimal size, but rather by the first to exploit the full potential of such plants. Once some firms achieve this, a market becomes extremely hard to enter. Challengers must construct comparable plants and do so after the first movers have already worked out problems with suppliers or with new production processes. Challengers must create distribution networks and marketing systems in markets where first movers have all the contacts and know-how. And challengers must recruit management teams to compete with those that have already mastered these functional and strategic activities.
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First I skim through the reading to pull out key areas and write notes then I identify the main idea of the reading.

[*] Minimum efficiency scale(MES) for successful manufacturer
[*] Points that lead to MES...
[*] Operational and organization determines economies of scale
[*] First to market don't always dominate, first to find the potential to scale dominate
[*] Management and teams execute on strategies to make them effective

Question 1 wants us to find the advantage that a manufacturer has over competitors.

A is incorrect since there was a paraphrase mentioned in my notes about first in the industry do not always dominate.

B doesn't make sense since sunk costs don't impact the bottom line as much as the surrounding costs.

D is out of scope, there is no mention of quality.

E is mentioned as not a reason for a manufacturer to be successful in the first paragraph.

C is correct since it's mentioned and hinted at multiple times in the first, and second paragraph. "costs per unit of output fall as plant size approaches “minimum efficient scale"

Question 2 asks us what's true about fixed and sunk costs. We know that the phrase "A manufacturer’s fixed costs and “sunk costs” (original capital investment in the physical plant) do not decrease when production declines" should help us to identify the right answer.

A, and D don't make sense based on the phrase we read in paragraph 1.

B, and C are never mentioned as a reason why a company would succeed or fail.

E is correct since any changes in throughput on the cost of the units does not impact the fixed and sunk costs. "Sunk costs" are paid before any product is being produced.

Question 3 requests we find the purpose of the 2nd paragraph, which covers the reasons for a successful manufacturing facility.

A looks the closest to what I identified, "Covers the reasons for a successful manufacturing facility". Holding on to this option for now.

B kinda looks good, but there is only one strategy mentioned, not various. Option A still looks the best.

C is wrong because there's no undermining tone.

D is incorrect since there is no objections stated.

E is wrong, there is no potential danger mentioned.

A is correct.

Question 4 wants us to look at paragraph 1 to find the options that support an inference on throughput, and eliminate it.

A is mentioned in the reading as a reason that would impact throughput "the flow of output to wholesalers".

B would impact throughput "the flow of goods through the production process".

C would also impact throughput in the same way as B.

E impacts throughput "inefficient sales networks".

D remains and is the most correct, validated by "costs per unit of output fall as plant size approaches “minimum efficient scale,” where the cost per unit of output reaches a minimum"

Question 5 is the primary purpose, which is captured in the notes. The tone mostly explains "minimum efficient scale" strategy and what can lead to a successful outcome for it.

B is wrong since the reading points out issues with any type of factory, not just large factories.

C is wrong since there is no argumentative tone, or phrasing.

D doesn't match up to the content and purpose that was provided.

E is incorrect because it doesn't explain why large plants fail. The reading focuses on explaining a strategy and how that strategy is implemented successfully.

A is the most correct, the reading highlights the importance of the strategy and how it's effective at scale.
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Manufacturers have to do more than build large manufacturing 17 Jun 2022, 17:51
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Hi GMATNinja

Can you please help me understand how to go about this type of passage. It took me 10 minutes to understand the passage.

Will highly appreciate your response!
The best approach to RC is to have a consistent method which you can apply to any passage. As you finish each paragraph, pause to ask yourself the following questions: 1) What was the author's purpose? 2) How does this paragraph connect to the previous paragraph? Check out our RC Guide for more on this approach.

Also, in case it helps, here's how we'd break down the passage using our method:

Paragraph 1
  • The author tells us what is necessary for economies of scale: not only large capacity, but also steady throughput.
  • The author then provides details about steady throughput: particularly, it depends on intangible capital.

Paragraph 2
  • The author explains why intangible capital is important

Overall, the second paragraph develops the main idea from the first paragraph –- namely, that steady throughput/intangible capital is essential to achieve economies of scale.

I hope that helps a bit!
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GMATNinja

Thank you for this helpful explanation. To clarify, on #532 (the primary purpose of this passage is to), is Choice C incorrect because essentially the passage is saying it is not enough just to build large plants ("manufacturers have to do more than build large manufacturing plants"), and then discusses why intangible capital is important?

So, the author does not think that there is a lack of investment but rather that there needs to be a focus on intangible capital? Thank you for all of your time and help.
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Manufacturers have to do more than build large manufacturing 21 Jun 2022, 08:44
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Question 5


woohoo921
GMATNinja
Push2808
Hi GMATNinja

Can you please help me understand how to go about this type of passage. It took me 10 minutes to understand the passage.

Will highly appreciate your response!
The best approach to RC is to have a consistent method which you can apply to any passage. As you finish each paragraph, pause to ask yourself the following questions: 1) What was the author's purpose? 2) How does this paragraph connect to the previous paragraph? Check out our RC Guide for more on this approach.

Also, in case it helps, here's how we'd break down the passage using our method:

Paragraph 1
  • The author tells us what is necessary for economies of scale: not only large capacity, but also steady throughput.
  • The author then provides details about steady throughput: particularly, it depends on intangible capital.

Paragraph 2
  • The author explains why intangible capital is important

Overall, the second paragraph develops the main idea from the first paragraph –- namely, that steady throughput/intangible capital is essential to achieve economies of scale.

I hope that helps a bit!

GMATNinja

Thank you for this helpful explanation. To clarify, on #532 (the primary purpose of this passage is to), is Choice C incorrect because essentially the passage is saying it is not enough just to build large plants ("manufacturers have to do more than build large manufacturing plants"), and then discusses why intangible capital is important?

So, the author does not think that there is a lack of investment but rather that there needs to be a focus on intangible capital? Thank you for all of your time and help.
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Keeping the purpose of each paragraph in mind, let's consider (C):

Quote:
5. The primary purpose of the passage is to

C. argue that large manufacturing facilities often fail because of inadequate investment in both tangible and intangible capital
Show more
Recall that in the first paragraph, the author argues that economies of scale require not only large capacity, but steady throughput, which itself require intangible capital.

Based on this, we could probably infer that IF a large manufacturing facility failed to invest in both tangible and intangible capital, it wouldn't achieve economy of scale. But notice that the author never claims that facilities "often fail" for these reasons. Maybe facilities only RARELY fail because of inadequate investments in tangible and intangible capital? Or maybe they fail specifically because they don't invest enough in intangible capital, whereas their investment in tangible capital is just fine? Or maybe the reason facilities "often fail" has nothing to do with economies of scale?

Since the author never addresses these questions, we really can't say. So the author's main purpose can't be to argue that facilities "often fail" because of some particular cause. For that reason, (C) is incorrect.

I hope that helps!
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Manufacturers have to do more than build large manufacturing 30 Mar 2023, 06:13
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what is the optimal time for answering such a passage?
I did 4/5 in 8 minutes.

got stuck on question #4, it was like a pokemon used confusion on me.
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Manufacturers have to do more than build large manufacturing 30 Mar 2023, 09:41
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joe123x
what is the optimal time for answering such a passage?
I did 4/5 in 8 minutes.

got stuck on question #4, it was like a pokemon used confusion on me.
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8 minutes for 5 questions are fine. Just concentrate on your accuracy.

Cheers.
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Manufacturers have to do more than build large manufacturing 11 Apr 2023, 05:48
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dear GMATNinjaTwo, VeritasKarishma, MartyTargetTestPrep, AndrewN,VeritasPrepBrian,GMATRockstar
KarishmaB

avigutman, AndrewN,MartyTargetTestPrep ,

would you please clarify the C of Q1?
Quote:

The passage suggests that in order for a manufacturer in a capital-intensive industry to have a decisive advantage over competitors making similar products, the manufacturer must

A. be the first in the industry to build production facilities of theoretically optimal size
B. make every effort to keep fixed and sunk costs as low as possible
C. be one of the first to operate its manufacturing plants at minimum efficient scale
D. produce goods of higher quality than those produced by direct competitors
E. stockpile raw materials at production sites in order to ensure a steady flow of such materials
Show more

I haven't gotten how can I infer the first operate its manufacturing plants at minimum efficient scale, the passage just says
Quote:
Such industries are quickly dominated, not by the first firms to acquire technologically sophisticated plants of theoretically optimal size, but rather by the first to exploit the full potential of such plants. Once some firms achieve this, a market becomes extremely hard to enter
Show more
,
my interpretation is the first one that shows the intangible capital plants. all the second passage talks about the importance of intangible capital plants.

I have no idea what I missed.

thanks in advance
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Manufacturers have to do more than build large manufacturing 11 May 2023, 12:44
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Question 1



zoezhuyan
dear GMATNinjaTwo, VeritasKarishma, MartyTargetTestPrep, AndrewN,VeritasPrepBrian,GMATRockstar

KarishmaB

avigutman, AndrewN,MartyTargetTestPrep ,

would you please clarify the C of Q1?

Quote:


The passage suggests that in order for a manufacturer in a capital-intensive industry to have a decisive advantage over competitors making similar products, the manufacturer must

A. be the first in the industry to build production facilities of theoretically optimal size

B. make every effort to keep fixed and sunk costs as low as possible

C. be one of the first to operate its manufacturing plants at minimum efficient scale

D. produce goods of higher quality than those produced by direct competitors

E. stockpile raw materials at production sites in order to ensure a steady flow of such materials

I haven't gotten how can I infer the first operate its manufacturing plants at minimum efficient scale, the passage just says

Quote:
Such industries are quickly dominated, not by the first firms to acquire technologically sophisticated plants of theoretically optimal size, but rather by the first to exploit the full potential of such plants. Once some firms achieve this, a market becomes extremely hard to enter
,

my interpretation is the first one that shows the intangible capital plants. all the second passage talks about the importance of intangible capital plants.

I have no idea what I missed.

thanks in advance
Show more
Question 1 asks us what the passage "suggests." This means that we're going to have to connect the dots, instead of looking for something that's stated outright in the text.

You've highlighted the correct portion of the passage: to dominate an industry, firms must be "the first to exploit the full potential of [technologically sophisticated/optimally sized] plants."

What does the author mean by "exploit the full potential" of a plant? For that, you have to go back to the first paragraph. The author tells us that it's not enough to build a big plant: to exploit the full potential of a plant is to achieve “minimum efficient scale” by optimizing throughput. We learn at the end of the first paragraph that optimizing throughput relies on both tangible and intangible capital.

So, the passage suggests that to have a competitive advantage, firms must "be one of the first to operate its manufacturing plants at minimum efficient scale."

(C) is the correct answer to question 1.

I hope that helps!
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Manufacturers have to do more than build large manufacturing 25 Jan 2024, 23:31
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Hi I have a question regarding answer E for the 2nd question.

According to the passage ………decrease when production declines due to inadequate supplies of raw materials, problems on the factory floor, or inefficient sales networks. Consequently, potential economies of scale are based on the physical and engineering characteristics of the production facilities—that is, on tangible capital—but realized economies of scale are operational and organizational, and depend on knowledge, skills, experience, and teamwork—that is, on organized human capabilities, or intangible capital.

I don’t quit get the logic between the two sentence before and after the word ‘Consequently’

Could anyone explain? If fixed and sunken costs are not affected by fluctuations in a manufacturing plant’s throughput, they are affected by what?
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Manufacturers have to do more than build large manufacturing Updated on: 21 Mar 2024, 10:41
Originally posted by GMATNinja on 21 Mar 2024, 10:14.
Last edited by GMATNinjaTwo on 21 Mar 2024, 10:41, edited 1 time in total.
edited explanation
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Lizshadehdg
Hi I have a question regarding answer E for the 2nd question.

According to the passage ………decrease when production declines due to inadequate supplies of raw materials, problems on the factory floor, or inefficient sales networks. Consequently, potential economies of scale are based on the physical and engineering characteristics of the production facilities—that is, on tangible capital—but realized economies of scale are operational and organizational, and depend on knowledge, skills, experience, and teamwork—that is, on organized human capabilities, or intangible capital.

I don’t quit get the logic between the two sentence before and after the word ‘Consequently’

Could anyone explain? If fixed and sunken costs are not affected by fluctuations in a manufacturing plant’s throughput, they are affected by what?
Show more

The passage doesn't go into detail about what affects fixed/sunk costs. For sunk costs, it would be things like the design of the plant, cost of building materials and construction labor, etc. For fixed costs, it might be things like cost of rent, property taxes, utilities, insurance, etc.

Regardless, all you really need to know is that fixed and sunk costs, unlike variable costs, are NOT affected by levels of production or sales--they remain unchanged regardless of whether the plant makes 2 units per day or 2,000 units per day.

As a result, when fixed costs make up a significant chunk of a plant's expenses, profits are more sensitive to changes in production--that's because the plant needs to generate a certain amount of revenue just to cover the fixed expenses...

  • Say for example, a plant needs to sell 5,000 units per month just to cover the fixed costs. Normally, they sell 6,000 units per month and make a handsome profit from the "extra" 1,000 units. But if production drops by 20% (1,200 units) because of, say, a supply chain issue, the plant is suddenly operating at a loss--the “unit costs rise sharply“ as production drops, because the fixed costs are spread over a smaller number of units.
  • In contrast, if fixed costs didn't exist and all costs were variable, a 20% drop in production would simply mean a 20% drop in profit--which isn't a good thing, but it beats operating at a loss. And because there are no fixed costs to spread across each unit sold, the cost per unit of output would always be at the "minimum" (increasing or decreasing production wouldn't change the cost PER unit of output).

If fixed and sunk costs were insignificant (or were, despite their names, somehow variable), fluctuations in production wouldn't have much of an impact on cost per unit of output. But fixed and sunk costs are real (cost to build the plant, pay the bills, etc.)... and because fixed/sunk costs are NOT variable, fluctuations in production WOULD have a significant impact on cost per unit of output--so how well a plant realizes economies of scale (i.e. minimizes cost per unit of output) depends greatly on how well it avoids or minimizes production declines--and that requires intangible capital (i.e. knowledge, skills, experience, and teamwork).

The part in bold is one way to summarize/paraphrase the sentence that you're asking about. To be fair, that sentence (and the use of "consequently") is awfully confusing. So rather than worry too much about mechanics, focus on the takeaway: when a plant has significant fixed costs, it needs to invest in intangible capital to minimize production delays (i.e. to maintain a steady "throughput")--otherwise profits can disappear quickly.

Hope that helps!­
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Manufacturers have to do more than build large manufacturing 27 Mar 2025, 07:32
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