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

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

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New post Updated on: 27 Sep 2018, 23:56
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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.


New question! Didn't find it on the forum. Topic tested - explain the discrepancy.

Originally posted by KAS1 on 22 Feb 2013, 13:10.
Last edited by Bunuel on 27 Sep 2018, 23:56, edited 1 time in total.
Renamed the topic and edited the question.
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Re: Newtronix, a technology company that sells only one product, recently  [#permalink]

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New post 22 Feb 2013, 22:19
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Lets look at each of the answer choices by turn.

[A]: Does a decline in market share necessarily mean a decline in sales? No! Even if the market share has decreased, the sales and therefore the profits may not necessarily decline. This seems to be our answer.
[B]: A ban on the sales of the ePod will definitely hit profits. This is a convincing explanation.
[C]: If the costs of producing the ePod went up, it can hit profits in spite of a price increase. This is a convincing explanation.
[D]: If the average customer purchased fewer ePods while the overall number of customers remained the same, then overall profits can fall in spite of the price increase.
[E]: The govt's imposition of taxes can mean a hit in profitability in spite of a price increase as this is also akin to a cost increase.

Judging from this, it should be A. However, this question is not watertight and needs be further thought through. For example, option E does not completely explain what the magnitude of taxes was. If it was more than additional profits gained from the price increase, then overall profits can decline, but if it was not, overall profits will still rise. Similarly, it needs to be noted in option A that the market itself did not remain static, because if it did then the loss in market share will also mean a drop in sales, which might mean a drop in profits.

Overall, this question could be worded in a much, much better way.
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Re: Newtronix, a technology company that sells only one product, recently  [#permalink]

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New post 24 Feb 2013, 05:31
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@gyan one ..i dont think the cases that u making does stand a chance for a gmat CR for the simple reason that if keep applying ifs and buts to answer choice then many gmat CR will fall apart .the fact is in most cases the answer choice of gmat CR typically opens up the "window" (as Ron calls ) and give us that opening to think the possibility or the non possibility of an argument
for instance the case that u making for E
Quote:
: If it was more than additional profits gained from the price increase, then overall profits can decline, but if it was not, overall profits will still rise.

this is not allowed
the fact is if u keep arguing like this almost all arguments will fall .when its written that taxes will increase that means that following equation : (profit = revenue - cost) gets affected by increased cost .
now the reason why A sud be the answer here is because with market share reducing we cannot be 100 percent sure that revenue will decline .
but with E we are 100 percent sure that cost will increase .now u cannot apply further if and but to this answer choice E
i hope this makes sense
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Re: Newtronix, a technology company that sells only one product, recently  [#permalink]

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New post 05 Mar 2015, 08:06
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KAS1 wrote:
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.

New question! Didn't find it on the forum. Topic tested - explain the discrepancy.



A is correct

A decrease in market share does not necessarily mean that the profits will decline.e.g.
Year 2011-Apple sold 1 million iPhones and Samsung sold 1 million Galaxy notes - Apples market share is 50%
Year 2012-Apples raises the price and still manages to sell 1 million iPhones whereas Samsung manages to sell 1.5 million Galaxy notes- Apples market share is 33%

But is the above info. enough to conclude that the profits for Samsung have decreased , Instead profits may have increased due to price rise.
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Re: Newtronix, a technology company that sells only one product, recently  [#permalink]

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New post 13 Jun 2015, 18:33
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GyanOne wrote:
Lets look at each of the answer choices by turn.

[A]: Does a decline in market share necessarily mean a decline in sales? No! Even if the market share has decreased, the sales and therefore the profits may not necessarily decline. This seems to be our answer.
[B]: A ban on the sales of the ePod will definitely hit profits. This is a convincing explanation.
[C]: If the costs of producing the ePod went up, it can hit profits in spite of a price increase. This is a convincing explanation.
[D]: If the average customer purchased fewer ePods while the overall number of customers remained the same, then overall profits can fall in spite of the price increase.
[E]: The govt's imposition of taxes can mean a hit in profitability in spite of a price increase as this is also akin to a cost increase.

Judging from this, it should be A. However, this question is not watertight and needs be further thought through. For example, option E does not completely explain what the magnitude of taxes was. If it was more than additional profits gained from the price increase, then overall profits can decline, but if it was not, overall profits will still rise. Similarly, it needs to be noted in option A that the market itself did not remain static, because if it did then the loss in market share will also mean a drop in sales, which might mean a drop in profits.

Overall, this question could be worded in a much, much better way.


In addition to your comment, I must say that the increase in taxes was prior to the price increase, so we can assume that the analysts' prediction was made taking the tax increase into account. Then this option would not be an explanation to the decline in price.
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Re: Newtronix, a technology company that sells only one product, recently  [#permalink]

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New post 22 Jun 2015, 06:36
mohnish104 wrote:
if market share decline, your profits are bound to decline... eg: apple is concerned that samsung is eating up its market share. why? decrease in market share -> decrease in revenues -> decrease in profits.


just an FYI. a decrease in revenue may not always lead to a decrease in profits. a company may have 1 bn dollars in revenue and still make only 1 mn dollars in profits. similarly a company may have 1 mn dollars in revenue but can have 800,000 dollars in profits. now in the argument, the narrator explicitly mentions that the company has ONLY 1 product. if the initial price of the product was lets say 1000 usd and the number of customers buying this product was 10, sales are 10000 usd and profits may be 8000 usd. now with the price appraisal, lets say the new price is 2000 usd but number of customers your company is catering to drops to 8. sales of 16000 usd and profits may still be greater than or equal to the previously 8000 usd. you see??? market share is the number of customers a company caters to. in this argument is it explicitly mentioned that the company caters to THESE MANY NUMBER OF CUSTOMERS???? NO!!! hence, A is correct because it doesnt explain the decline.
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Re: Newtronix, a technology company that sells only one product, recently  [#permalink]

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New post 08 Jul 2015, 16:01
samichange wrote:
KAS1 wrote:
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.

New question! Didn't find it on the forum. Topic tested - explain the discrepancy.



A is correct

A decrease in market share does not necessarily mean that the profits will decline.e.g.
Year 2011-Apple sold 1 million iPhones and Samsung sold 1 million Galaxy notes - Apples market share is 50%
Year 2012-Apples raises the price and still manages to sell 1 million iPhones whereas Samsung manages to sell 1.5 million Galaxy notes- Apples market share is 33%

But is the above info. enough to conclude that the profits for Samsung have decreased , Instead profits may have increased due to price rise.



The above given illustration infact makes option A vulnerable
As assumed above Apple sells 1million ipods this year and has market share of 50%
next year it sells again 1million ipods but this time market share is 33%

My question here is company sold new 1million ipods at increased price this year and collects revenue greater than previous year , but still has decline in profits
this shows some other factor such as increase in raw material ( as indicated in Option C) must be cause of this.

Thus market share is irrelevant of the revenue generated by company .
IMO option C is correct
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Re: Newtronix, a technology company that sells only one product, recently  [#permalink]

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New post 08 Jul 2015, 16:04
IMO C is correct
Find my explanation below

Year 2011-Apple sold 1 million iPhones and Samsung sold 1 million Galaxy notes - Apples market share is 50%
Year 2012-Apples raises the price and still manages to sell 1 million iPhones whereas Samsung manages to sell 1.5 million Galaxy notes- Apples market share is 33%

As assumed above Apple sells 1million ipods this year and has market share of 50%
next year it sells again 1million ipods but this time market share is 33%

My reasoning here is company sold new 1million ipods at increased price in 2012 and collects revenue greater than previous year , but still has decline in profits
this shows some other factor such as increase in raw material ( as indicated in Option C) must be cause of this.

Thus market share is irrelevant of the revenue generated by company .
IMO option C is correct

Kindly let me know if I am missing something
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Re: Newtronix, a technology company that sells only one product, recently  [#permalink]

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New post 08 Jul 2015, 22:31
kanigmat011 wrote:
IMO C is correct
Find my explanation below

Year 2011-Apple sold 1 million iPhones and Samsung sold 1 million Galaxy notes - Apples market share is 50%
Year 2012-Apples raises the price and still manages to sell 1 million iPhones whereas Samsung manages to sell 1.5 million Galaxy notes- Apples market share is 33%

As assumed above Apple sells 1million ipods this year and has market share of 50%
next year it sells again 1million ipods but this time market share is 33%

My reasoning here is company sold new 1million ipods at increased price in 2012 and collects revenue greater than previous year , but still has decline in profits
this shows some other factor such as increase in raw material ( as indicated in Option C) must be cause of this.

Thus market share is irrelevant of the revenue generated by company .
IMO option C is correct

Kindly let me know if I am missing something



Hi Kani,

The only issue seems to be that you just misread the question. The answer should be an option that is NOT a convincing explanation for the decline in Newtronix's profit. (notice the "EXCEPT")

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.

You were spot on in deducing that C is a valid explanation for the decline in profits while A is not. Like option C, options B, D and E are also valid explanations that could lead to the decline in profits. Hence, A should be our answer! :)

Hope that made it clear.

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

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New post 27 Mar 2017, 11:01
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.
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Re: Newtronix, a technology company that sells only one product, recently  [#permalink]

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New post 17 Aug 2017, 07:55
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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, recently  [#permalink]

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New post 22 Aug 2017, 14:49
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.
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Re: Newtronix, a technology company that sells only one product, recently  [#permalink]

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Re: Newtronix, a technology company that sells only one product, recently &nbs [#permalink] 27 Sep 2018, 23:50
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