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Newtronix, a technology company that sells only one product,

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Manager
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Joined: 15 Aug 2015
Posts: 61

Kudos [?]: 11 [0], given: 302

Schools: LBS '18
Re: Newtronix, a technology company that sells only one product, [#permalink]

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New post 17 Aug 2017, 02:39
Quote:
Newtronix, a technology company that sells only one product, recently raised prices on its signature product, the ePod. Analysts had predicted that increased prices would translate into higher profits for Newtronics. However, Newtronix saw its profits decline after the price increase.

Each of the following, if true, is convincing as an explanation for the decline in Newtronix’s profit EXCEPT

A. Newtronix’s market share has declined since the price increase.
B. A recent patent dispute led to the ban of sales of ePods in several countries.
C. Materials necessary to the production of a necessary component of the ePod recently went up in price.
D. The average customer purchased fewer ePods as a result of the price increase, while the number of customers purchasing ePods remained the same.
E. The government imposed higher taxes on Newtronix just prior to the price increase.


Well i can try explaining why A is the correct answer.
Market share is a confusing concept and ,therefore many shell game incorrect answers can be made out of it
for example here
Newtronix market share has declined since the price increase.
there can be two reasons here
1. the obvious one the sale of its prime product decreased and therefore the market share of newtronix decreased, provided the market share on the whole was same as before, or
2. the market on the whole expanded , but the market share of newtronix remained the same ,which will lead to no profit no loss situation for newtronix . On the whole the market share of Newtronix decreased here but there is no loss for the company. Hence no discrepancy.
The closest other option can be C , as it doesn't quite explain a lot why profits of newtronix declined but A is much more better here.
Hope it helps

Kudos [?]: 11 [0], given: 302

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Joined: 24 Jun 2008
Posts: 1347

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Re: Newtronix, a technology company that sells only one product, [#permalink]

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New post 17 Aug 2017, 06:55
jithinkadayil wrote:
The choices are ambiguous.
If the logic is like "A is wrong since Total market revenue before and after is not mentioned"..then all the other choices are equally vulnerable.
C-How can we decide total profit based on rise in cost of a single component. What if price of all other major components have gone down??
I mean to say ..these choices are equally good or bad.


I agree with this. Normally if your market share declines, that's a bad thing. It can mean your sales have dropped, or that your competitors are selling more than before (or a combination of those two things). Of course, the fact alone that a company's market share has dropped doesn't guarantee that the company's profit has dropped, but none of the answer choices here guarantee that the company's profit drops. For any of the five answer choices to be "convincing as an explanation" for the drop in profit (which is what the question asks), we need more information. Was the tax increase mentioned in E large or small? Was the increase in the cost of the raw material mentioned in C large or small? And so on.

None of the answers is "convincing as an explanation" without additional assumptions, and any of them can be "convincing" if you do make assumptions. So how do we decide which assumptions we're supposed to make, and which we're not supposed to make? There's no way to tell. So I don't think this is a well-designed question.
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Re: Newtronix, a technology company that sells only one product, [#permalink]

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New post 22 Aug 2017, 13:49
Newtronix, a technology company that sells only one product, recently raised prices on its signature product, the ePod. Analysts had predicted that increased prices would translate into higher profits for Newtronics. However, Newtronix saw its profits decline after the price increase.

Each of the following, if true, is convincing as an explanation for the decline in Newtronix’s profit EXCEPT

A. Newtronix’s market share has declined since the price increase.
B. A recent patent dispute led to the ban of sales of ePods in several countries.
C. Materials necessary to the production of a necessary component of the ePod recently went up in price.
D. The average customer purchased fewer ePods as a result of the price increase, while the number of customers purchasing ePods remained the same.
E. The government imposed higher taxes on Newtronix just prior to the price increase.


The choice that does not expalin why the profits declined is the correct choice.

A is the onl coice that does not help in the understanding of the decline in the profits adn thus is correct.

Kudos [?]: 81 [0], given: 18

Re: Newtronix, a technology company that sells only one product,   [#permalink] 22 Aug 2017, 13:49

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