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# Mechanicorp s newest product costs so little to make that it

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VP
Joined: 21 Jul 2006
Posts: 1330
Mechanicorp s newest product costs so little to make that it  [#permalink]

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10 Jan 2008, 07:39
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Difficulty:

(N/A)

Question Stats:

100% (01:14) correct 0% (00:00) wrong based on 36 sessions

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Mechanicorp’s newest product costs so little to make that it appears doubtful the company will be able to sell it without increasing the markup the company usually allows for profit: potential clients would simply not believe that something so inexpensive would really work. Yet Mechanicorp’s reputation is built on fair prices incorporating only modest profit margins.
The statements above, if true, most strongly support which of the following?

(A) Mechanicorp will encounter difficulties in trying to set a price for its newest product that will promote sales without threatening to compromise the company’s reputation.

(B) Mechanicorp achieves large annual profits, despite small profits per unit sold, by means of a high volume of sales.

(C) Mechanicorp made a significant computational error in calculating the production costs for its newest product.

(D) Mechanicorp’s newest product is intended to perform tasks that can be performed by other devices costing less to manufacture.

(E) Mechanicorp’s production processes are designed with the same ingenuity as are the products that the company makes.

In this problem, I chose E, however the OA is A. How come??? Why should the company face difficulties in adjusting their rates when no customer is going to know about the increase in markup? I think that Mechanicorp can raise its price however much it chooses to as long as the price is still considered low enough to keep its reputation uncompromised. How can it be compromised when the customers still perceive the price to be really fair and low? I chose E because it basically says that Mechanicorp's products are pretty much consistence in the standards that they want to convey. I felt that was a pretty fair statement. what do you think? thanks
Director
Joined: 12 Jul 2007
Posts: 804

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10 Jan 2008, 07:50
I think A is correct but we need to assume everyone has a perfect understanding of the market. You're correct in that people out in the "real world" wouldn't know how much it costs to manufacture the product, but in some of these questions we need to assume everyone knows everything.

Quote:
Yet Mechanicorp’s reputation is built on fair prices incorporating only modest profit margins.

If their reputation is built on incorporating only a modest profit margin we can assume everyone knows about their profit margins (or they wouldn't have a reputation for it!)

Although E may be a fair assumption in the real world, within the constraints of this passage and the GMAT we can infer absolutely nothing about the product or their production techniques.
VP
Joined: 21 Jul 2006
Posts: 1330

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Updated on: 10 Jan 2008, 08:05
yeah, I agree that because of the company's reputation, people generally know about the company's general markup pricing. However, it is doubtful that the market will already know about the markup of the NEWEST product before it's even out there for sale. I'm just confused of where or when do we set the boundaries when it comes to assuming things like this. any insight? The problem I have with this question is that it contradicts my logical understanding, which disrubts my understanding of this problem. thanks

Originally posted by tarek99 on 10 Jan 2008, 07:59.
Last edited by tarek99 on 10 Jan 2008, 08:05, edited 1 time in total.
Director
Joined: 12 Jul 2007
Posts: 804

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10 Jan 2008, 08:04
tarek99 wrote:
yeah, I agree that because of the company's reputation, people generally know about the company's general markup pricing. However, it is doubtful that the market will already know about the markup of the NEWEST product before it's even out there for sale. I'm just confused of where or when do we set the boundaries when it comes to assuming things like this. any insight? thanks

They won't know what the markup is until it's on the market. A says they'll have trouble coming up with pricing that will balance sales and reputation. So the pricing is being set before the consumer knows anything at all, but it's still a struggle to set pricing so that when it is up for sale the two considerations are balanced.
VP
Joined: 21 Jul 2006
Posts: 1330

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10 Jan 2008, 08:06
hmmm....i like that comment. That surely solves my problem. thanks! i'm still reviewing some critical reasoning questions that i have in hand. i will be posting some of them in few minutes. stay tuned!
Director
Joined: 12 Jul 2007
Posts: 804

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10 Jan 2008, 08:08
I'll help with anything I can. I'm at work all day so I'm not going anywhere
Manager
Joined: 21 May 2015
Posts: 221
Concentration: Operations, Strategy
GMAT 1: 750 Q50 V41
Re: Mechanicorp s newest product costs so little to make that it  [#permalink]

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02 Jun 2015, 00:45
A
Premise - The company has to increase markup to sell the product
Premise - Mechanicorp’s reputation is built on fair prices incorporating only modest profit margins.
Thus to sell the product company has to undermine its reputation ---- restated in option A
_________________
Apoorv

I realize that i cannot change the world....But i can play a part
SVP
Joined: 12 Dec 2016
Posts: 1524
Location: United States
GMAT 1: 700 Q49 V33
GPA: 3.64
Re: Mechanicorp s newest product costs so little to make that it  [#permalink]

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16 Dec 2017, 16:39
hello, this question looks weird even though many gmat forums have this question. One forum even states that this question is from a 2011 CAT.
1/ what is exactly the source of this question?
2/ Is this really a gmat question?
3/ Is A the correct answer?
4/ The passage is hard to comprehend. Do you agree with me?

Thank you.
Re: Mechanicorp s newest product costs so little to make that it   [#permalink] 16 Dec 2017, 16:39
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