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Good LuckAshwath2001 wrote:
The following appeared as part of an annual report sent to stockholders by Olympic Foods, a processor of frozen
foods:
“Over time, the costs of processing go down because as organizations learn how to do things better, they become more efficient. In color film processing, for example, the cost of a 3-by-5-inch print fell from 50 cents for five-day service in 1970 to 20 cents for one-day service in 1984. The same principle applies to the processing of food. And since Olympic Foods will soon celebrate its 25th birthday, we can expect that our long experience will enable us to minimize costs and thus maximize profits.”
Discuss how well reasoned . . . etc.
The argument presented is flawed and it does not provide any evidence to support the arguments.Primarly,the comparison between color film processing industry and food processing indutry itself is an act with no evidence.
The first flaw the argument presents is comparing color film processing industry with food processing industry.Both these industry are having different industry dynamics and market space,comapring these two is not an ideal move and the argument does not provide any warrent to support the argument.If the argument had presented any statistical data about correlation between these two industries,then it would have slightly strengthen the argument but the metrics of comparison is different for these two industries.
The second serious flaw to dissect is that it over optimistically assumes that long experience of olympic foods will drive profits and minimize the cost.This argument is fundamentally wrong as it is not necessary that highly experienced companies have maximum profit's and minimum cost.The performance depends on the companies operations,leadership and also the economic landscape of the country.If the argument had presented the historic data about this company, then it would be relaiable to predict the profit and cost,even knowing the data is not the only metric to predict the profit and cost.
An unwarrented flaw to consider is that the argument assumes that organizations learn to be more efficient over time.This is a general statement which is not supported by any conclusive evidence.There are lots of comapnies who are not efficient in some aspect even though they are exeperienced.The assumption this argument makes is flawed and this need not be true in case of food processing industry as a whole.If the argument had presented a percentage decrease in cost of production for experienced companies then it would strengthen the argument,but cost of production can be affected by other factors like leadership changes and employee quality etc.
In conclusion,the argument is flawed and it does not provide any convincing evidence to support the claims.So,we cannot assume that olympic foods will have maximum profit and minimum profits solely based on having high experience in the industry.