Newtronix, a technology company that sells only one product, recently

Official Explanation

(1) Identify the Question Type

We are asked about explanations for the decline in profits, so this question requires us to resolve a discrepancy. We will need to identify the apparent contradiction and consider what helps to explain why the information is not actually contradictory. Because the question uses the word EXCEPT, we need to find four options that appear to explain the decline in profits and select the remaining option.

(2) Deconstruct the Argument

We are given a company that sells only one product, which eliminates the need to complicate the argument with a varied product mix. Analysts thought raising prices would increase profits, but instead profits declined.

(3) State the Goal

We need to find four answer choices that could explain a decrease in profits and select the remaining option. Profit is calculated as revenue minus costs, so any direct increase in costs or decrease in revenue will tend to lower profits. We are looking to eliminate any options that increase costs, decrease revenue, or have no definite connection to either factor.

(4) Work from Wrong to Right

(A) CORRECT. The fact that Newtronix’s ePod sales represent a smaller portion of the total market revenue does not necessarily mean that Newtronix’s profits decreased. In fact, Newtronix’s revenues could even have gone up if the total market revenue increased by an even greater percentage.

(B) If sales were banned in several countries, there could be fewer customers, leading to a loss of revenue and lower profits.

(C) If the cost of a component has increased, then costs in general have increased, which can lead to lower profits.

(D) If the average customer purchased fewer ePods, and there is no increase in the total number of customers, this represents a loss of revenue.

(E) Increased taxes represent increased costs.

Answer: A