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McCray's Dairy Industries stands to reap tremendous profits in the

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McCray's Dairy Industries stands to reap tremendous profits in the  [#permalink]

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New post 13 Sep 2015, 09:07
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McCray's Dairy Industries stands to reap tremendous profits in the coming year. The new milking apparatus and packing equipment purchased and installed last year allows McCray's to produce the same quantity of dairy products at less than one third of the previous cost. Restaurants and academic institutions throughout the state will choose to purchase all their dairy products from McCray's, because they will be available at a much lower cost than similar products from rival producers.

The argument above assumes which of the following?

A) Statewide demand for dairy products will increase substantially in the coming year
B) Buyers at restaurants and academic institutions throughout the state would prefer McCray's dairy products over rival dairy products if cost were no object
C) Physicians see no reason to predict a sharp increase in the number of dairy allergies throughout the state.
D) Statewide production of dairy products will not increase in the coming year.
E) The quality of McCray's dairy products meets the acceptability standards of most restaurants and academic institutions throughout the state.

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Re: McCray's Dairy Industries stands to reap tremendous profits in the  [#permalink]

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New post 15 Sep 2015, 15:13
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Harley1980 wrote:
McCray's Dairy Industries stands to reap tremendous profits in the coming year. The new milking apparatus and packing equipment purchased and installed last year allows McCray's to produce the same quantity of dairy products at less than one third of the previous cost. Restaurants and academic institutions throughout the state will choose to purchase all their dairy products from McCray's, because they will be available at a much lower cost than similar products from rival producers.

The argument above assumes which of the following?

A) Statewide demand for dairy products will increase substantially in the coming year
B) Buyers at restaurants and academic institutions throughout the state would prefer McCray's dairy products over rival dairy products if cost were no object
C) Physicians see no reason to predict a sharp increase in the number of dairy allergies throughout the state.
D) Statewide production of dairy products will not increase in the coming year.
E) The quality of McCray's dairy products meets the acceptability standards of most restaurants and academic institutions throughout the state.

Dear Harley1980,
I'm happy to answer. :-) It's always fun to discuss a question I wrote. :-)

This is an assumption question, and it lends itself well to the negation test. See:
http://magoosh.com/gmat/2013/assumption ... -the-gmat/
If we negate the answer choice, will the argument still work?

Negation of (A):
Statewide demand for dairy products will not increase substantially in the coming year.
OK, maybe this means that its stays the same or increases only slightly. Even if things stay the same, if McCray's dairy is far cheaper than the diary of its rivals, McCray could still make a big profit. Negating this doesn't destroy the argument, so this is not an assumption.

Negation of (B):
Buyers at restaurants and academic institutions throughout the state would prefer rival dairy products over McCray's dairy products if cost were no object
Let's call the rival Milky's. Suppose that, if both product were the same price, most institutional buyer and restaurant buyers would buy Milky's. Suppose that's true. Now, McCray starts using this now machine, and the cost of McCray goes down considerably. Now, cost is an object! Now, perhaps fine restaurants would always buy the best ingredients, regardless of cost, but ordinary restaurants & schools & hospitals & other institutions often have severe budget constraints, and if one product is much cheaper, even if it is marginally worse, that is the product that will be bought. McCray's could still make a great deal of money in this scenario. Negating this doesn't destroy the argument, so this is not an assumption.

Negation of (C):
Physicians have some reason to predict a sharp increase in the number of dairy allergies throughout the state.
Hmm. Well, first, the fact that some group of doctors feel that they have reason to predict some scenario of doom does NOT guarantee that it will happen. Modern culture is absolutely saturated with predictions of doom that go nowhere! So, first of all, just because it's predicted, it may or may not happen, in which case, it doesn't impact McCray's at all.
If there is a sharp increase in the number of dairy allergies throughout the state, well, that's a problem for all dairy manufacturers, but a dairy manufacturer that cut its prices, as McCray's had planned, would be situation to clean up in the reduced market, possibly driving rivals out of business. So, even this scenario, while not as rosy, would still benefit McCray's. Negating this doesn't destroy the argument, so this is not an assumption.

Negation of (D):
Statewide production of dairy products will increase in the coming year.
Hmm. Supply increases. According to the Law of Supply and Demand, this will drive price down. For many manufacturers, with fixed costs, this may be a problem. But if McCray's was planning to lower their price already, they would be in good shape. In fact, this condition may drive rivals out of business, which would be even better for McCray's. Negating this doesn't destroy the argument, so this is not an assumption.

Negation of (E):
The quality of McCray's dairy products does not meet the acceptability standards of most restaurants and academic institutions throughout the state.
Uh-oh. This is a BIG problem for McCray's. If McCray's dairy products are below standards, then even if there price decreases, they may not make much more money, because they can't sell to many institutions. Institutions will tend to buy a cheaper product, but many institutions that serve food, especially schools and hospitals, are bound by strict state laws about food quality, if if something is not acceptable according to these laws, the institutions legally are not allowed to touch it, regardless of how affordably it may be priced. McCray will not make big profits in this case. This shatters the argument. Since negating this has a devastating effect on the argument, this must be an assumption.

OA = (E)

Does all this make sense?
Mike :-)
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Re: McCray's Dairy Industries stands to reap tremendous profits in the  [#permalink]

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New post 13 Sep 2015, 13:08
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McCray's Dairy Industries stands to reap tremendous profits in the  [#permalink]

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New post 31 Dec 2015, 22:19
mikemcgarry wrote:
Harley1980 wrote:
McCray's Dairy Industries stands to reap tremendous profits in the coming year. The new milking apparatus and packing equipment purchased and installed last year allows McCray's to produce the same quantity of dairy products at less than one third of the previous cost. Restaurants and academic institutions throughout the state will choose to purchase all their dairy products from McCray's, because they will be available at a much lower cost than similar products from rival producers.

The argument above assumes which of the following?

A) Statewide demand for dairy products will increase substantially in the coming year
B) Buyers at restaurants and academic institutions throughout the state would prefer McCray's dairy products over rival dairy products if cost were no object
C) Physicians see no reason to predict a sharp increase in the number of dairy allergies throughout the state.
D) Statewide production of dairy products will not increase in the coming year.
E) The quality of McCray's dairy products meets the acceptability standards of most restaurants and academic institutions throughout the state.

Dear Harley1980,
I'm happy to answer. :-) It's always fun to discuss a question I wrote. :-)

This is an assumption question, and it lends itself well to the negation test. See:
http://magoosh.com/gmat/2013/assumption ... -the-gmat/
If we negate the answer choice, will the argument still work?

Negation of (A):
Statewide demand for dairy products will not increase substantially in the coming year.
OK, maybe this means that its stays the same or increases only slightly. Even if things stay the same, if McCray's dairy is far cheaper than the diary of its rivals, McCray could still make a big profit. Negating this doesn't destroy the argument, so this is not an assumption.

Negation of (B):
Buyers at restaurants and academic institutions throughout the state would prefer rival dairy products over McCray's dairy products if cost were no object
Let's call the rival Milky's. Suppose that, if both product were the same price, most institutional buyer and restaurant buyers would buy Milky's. Suppose that's true. Now, McCray starts using this now machine, and the cost of McCray goes down considerably. Now, cost is an object! Now, perhaps fine restaurants would always buy the best ingredients, regardless of cost, but ordinary restaurants & schools & hospitals & other institutions often have severe budget constraints, and if one product is much cheaper, even if it is marginally worse, that is the product that will be bought. McCray's could still make a great deal of money in this scenario. Negating this doesn't destroy the argument, so this is not an assumption.

Negation of (C):
Physicians have some reason to predict a sharp increase in the number of dairy allergies throughout the state.
Hmm. Well, first, the fact that some group of doctors feel that they have reason to predict some scenario of doom does NOT guarantee that it will happen. Modern culture is absolutely saturated with predictions of doom that go nowhere! So, first of all, just because it's predicted, it may or may not happen, in which case, it doesn't impact McCray's at all.
If there is a sharp increase in the number of dairy allergies throughout the state, well, that's a problem for all dairy manufacturers, but a dairy manufacturer that cut its prices, as McCray's had planned, would be situation to clean up in the reduced market, possibly driving rivals out of business. So, even this scenario, while not as rosy, would still benefit McCray's. Negating this doesn't destroy the argument, so this is not an assumption.

Negation of (D):
Statewide production of dairy products will increase in the coming year.
Hmm. Supply increases. According to the Law of Supply and Demand, this will drive price down. For many manufacturers, with fixed costs, this may be a problem. But if McCray's was planning to lower their price already, they would be in good shape. In fact, this condition may drive rivals out of business, which would be even better for McCray's. Negating this doesn't destroy the argument, so this is not an assumption.

Negation of (E):
The quality of McCray's dairy products does not meet the acceptability standards of most restaurants and academic institutions throughout the state.
Uh-oh. This is a BIG problem for McCray's. If McCray's dairy products are below standards, then even if there price decreases, they may not make much more money, because they can't sell to many institutions. Institutions will tend to buy a cheaper product, but many institutions that serve food, especially schools and hospitals, are bound by strict state laws about food quality, if if something is not acceptable according to these laws, the institutions legally are not allowed to touch it, regardless of how affordably it may be priced. McCray will not make big profits in this case. This shatters the argument. Since negating this has a devastating effect on the argument, this must be an assumption.

OA = (E)

Does all this make sense?
Mike :-)





Dear Teacher( Mr. Mike),

I have one doubt.

Option E -->The quality of McCray's dairy products meets the acceptability standards of most restaurants and academic institutions throughout the state

+
Premise 1 ---> they will be available at a much lower cost than similar products from rival producers

Premise 2----> The new milking apparatus and packing equipment purchased and installed last year allows McCray's to produce the same quantity of dairy products at less than one third of the previous cost.


----------------------------

Conclusion -----> Restaurants and academic institutions throughout the state will choose to purchase all their dairy products from McCray's


I am unable to connect option E to the argument. Argument didn't compare the quality of both the company's products. To my understanding, quality aspect of Mccray's product shouldn't be taken into account. it simply strengthens the conclusion.

Please explain where I am missing the concept.

Thanks,

Sun01

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Re: McCray's Dairy Industries stands to reap tremendous profits in the  [#permalink]

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New post 01 Jan 2016, 17:11
sun01 wrote:
Dear Teacher (Mr. Mike),

I have one doubt.

Option E -->The quality of McCray's dairy products meets the acceptability standards of most restaurants and academic institutions throughout the state

Premise 1 ---> they will be available at a much lower cost than similar products from rival producers

Premise 2----> The new milking apparatus and packing equipment purchased and installed last year allows McCray's to produce the same quantity of dairy products at less than one third of the previous cost.

----------------------------

Conclusion -----> Restaurants and academic institutions throughout the state will choose to purchase all their dairy products from McCray's

I am unable to connect option E to the argument. Argument didn't compare the quality of both the company's products. To my understanding, quality aspect of Mccray's product shouldn't be taken into account. it simply strengthens the conclusion.

Please explain where I am missing the concept.

Thanks,

Sun01

Dear Sun01,
I'm happy to respond. :-)

We know from the prompt:
(1) "The new milking apparatus and packing equipment purchased and installed last year allows McCray's to produce the same quantity of dairy products at less than one third of the previous cost."
Therefore,
(2) McCray's products "will be available at a much lower cost than similar products from rival producers."
Therefore,
(3) "Restaurants and academic institutions throughout the state will choose to purchase all their dairy products from McCray's"
Therefore,
(4) CONCLUSION = "McCray's Dairy Industries stands to reap tremendous profits in the coming year."

That's the basic argument. We have to think about what condition might create a problem with this argument. The assumption would tell us that this new problem didn't exist or didn't affect the argument.

Right now, we can infer that a large number of "restaurants and academic institutions throughout the state" do not purchase their products from McCray's. McCray's is hoping to win all these as new customers, thus earning a great deal in profits.

We know from the prompt that McCray's products will be the lowest cost, so price of the products is not going to cause any problem. If there is any problem, it would have to be something other than price. What would prevent "restaurants and academic institutions throughout the state" from buying a cheaper product available on the market?

One problem could be quality. The other suppliers in the state, the ones who currently sell to most of the "restaurants and academic institutions throughout the state," must have products that meet or exceed those institutions' minimum acceptable standards for quality. They must, because otherwise they wouldn't be making those sales. Now, McCray's comes along with a cheaper product. But suppose McCray's products are below the minimum acceptable standards for quality of many of these institutions. These institutions would not be able to buy McCray's products, even if they were cheaper.

Here's where it is very helpful to a little real world knowledge. At least in the US, and I assume in other countries, any place that prepares food for people (restaurants, college dining halls, hospitals, etc.) has to follow a large set of rules from the state and federal level. Food preparation and storage areas have to meet hygiene requirements, and food products purchased have to meet quality standards. The institution would be free to buy food from whomever they like, and it would be free to purchase the cheapest product----as long as this product met the minimum acceptable standards allowed by state or federal law. If the institution tries to cut corners by buying an inferior product, below federal standards, the institution could get into a whole lot of legal trouble!

Now, if McCray's products do not meet the acceptability standards of most restaurants and academic institutions throughout the state, then they will not be able to sell their cheaper product to these places----most likely, these institutions would be prohibited by law from buying McCray's products. If this were the case, it would shatter McCray's strategy for generating tremendous profits.

If the argument in the prompt is going to remain valid, then it must be supported by an assumption about McCray's product quality. In particular, it must be true that "the quality of McCray's dairy products meets the acceptability standards of most restaurants and academic institutions throughout the state." If this is true, then there will be no legal impediment, and institutions will be free to buy McCray's cheaper product.

You see, my friend, the purpose of the GMAT is to test your readiness for working in the modern business world. Nobody expect you to be an expert in every single industry out there, but you absolutely have to have a general sense of the push & pull of real world transactions. What determines whether a university kitchen can buy one product or another? What determines where a restaurant gets its food? If you want to go into the business world, get curious about these things. Get into conversations with folks who make business decisions, and learn what motivates them. Here's a blog article, with a link to others, that will get you thinking about this aspect of the test.
http://magoosh.com/gmat/2014/gmat-criti ... knowledge/

Does all this make sense?
Mike :-)
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Re: McCray's Dairy Industries stands to reap tremendous profits in the  [#permalink]

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New post 02 Jan 2016, 13:35
Doesn't assumption that dairy products from McCray's will be sold in institution already stated in stimulus?

'Restaurants and academic institutions throughout the state will choose to purchase all their dairy products from McCray's, because they will be available at a much lower cost than similar products from rival producers.''
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Re: McCray's Dairy Industries stands to reap tremendous profits in the  [#permalink]

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New post 02 Jan 2016, 16:20
Berns wrote:
Doesn't assumption that dairy products from McCray's will be sold in institution already stated in stimulus?

'Restaurants and academic institutions throughout the state will choose to purchase all their dairy products from McCray's, because they will be available at a much lower cost than similar products from rival producers.''

Dear Berns,
I'm happy to respond. :-)

My friend, that's a prediction about the future---the future of the business world. Nobody, absolutely NOBODY, knows exactly what is going to happen in the future, especially in the modern business world. A prediction is not evidence. A prediction is a guess about what might happen, based on careful observations of the patterns of past & present. Here, the argument is in the form a prediction, and a flaw in the argument would be anything that implied that the future might turn out differently from this prediction.

Does all this make sense?
Mike :-)
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Re: McCray's Dairy Industries stands to reap tremendous profits in the  [#permalink]

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New post 11 Aug 2018, 01:50

Official Explanation


For an assumption, we can use the Negation Test. The credited answer is (E). What happens if we negate this statement? If the quality of McCray's dairy products does not meet the acceptability standards of most restaurants and academic institutions throughout the state, then these places will not buy McCray's products, and McCray would not reap a profit. Assuming the opposite of this statement destroys the argument, so this is a valid assumption.

Maybe overall demand for dairy will increase, or maybe, with the same overall demand, McCray simply will outperform competitors. We don't know. Choice (A) is incorrect.

If this were false, perhaps buyers like McCray's and rival's products equally, but if the McCray products are cheaper, they would still buy those. The argument still works if we deny this, so this is not an assumption. Choice (B) is incorrect.

Even if some physicians did have reasons to make this prediction, not everything a doctor predicts is automatically true. It's conceivable that some physicians could issue a dire prediction, and then nothing would happen and the dairy economy would continue uninterrupted. The argument still works if we deny this, so this is not an assumption. Choice (C) is incorrect.

Even if supply and demand remain at the same level overall, if McCray has cheaper prices, they will sell more and make more of a profit, successfully winning a larger share of the same basic market. The argument still works if we deny this, so this is not an assumption. Choice (D) is incorrect.
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Re: McCray's Dairy Industries stands to reap tremendous profits in the &nbs [#permalink] 11 Aug 2018, 01:50
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