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# Pharmaceutical companies typically charge slightly inflated prices for

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Math Expert
Joined: 02 Sep 2009
Posts: 58330
Pharmaceutical companies typically charge slightly inflated prices for  [#permalink]

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05 Mar 2019, 02:21
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45% (medium)

Question Stats:

65% (02:14) correct 35% (02:35) wrong based on 256 sessions

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Pharmaceutical companies typically charge slightly inflated prices for drugs that have a large customer base and are heavily prescribed by doctors, in order to balance the losses such companies experience from producing “orphan” drugs—drugs that are used by so few patients that they can never be profitable. New federal regulations require pharmaceutical companies to limit the price they charge for any drug to cost plus a predetermined percentage profit.

If the statements above are true, which of the following must also be true?

A. New pharmaceutical technology has made advances possible; the drugs produced by such technology, however, are too expensive for all but the wealthiest patients.

B. If pharmaceutical companies do not find another source of income to balance the losses they experience in producing orphan drugs, such companies will no longer be able to produce those drugs without compromising overall profits.

C. Some patients already request generic pharmaceuticals, when they are available, because they are typically less expensive than name-brand pharmaceuticals.

D. If pharmaceutical companies reduce the costs of producing most drugs, they will be able to earn more profits despite the new law, and thus will be able to balance the losses they experience from the production of orphan drugs.

E. Even though charitable organizations that fund research into the rare diseases treated by orphan drugs provide some donations to offset the costs of the drugs, such donations are declining.

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Re: Pharmaceutical companies typically charge slightly inflated prices for  [#permalink]

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06 Mar 2019, 05:29
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Quote:
Pharmaceutical companies typically charge slightly inflated prices for drugs that have a large customer base and are heavily prescribed by doctors, in order to balance the losses such companies experience from producing “orphan” drugs—drugs that are used by so few patients that they can never be profitable. New federal regulations require pharmaceutical companies to limit the price they charge for any drug to cost plus a predetermined percentage profit.

If the statements above are true, which of the following must also be true?

A. New pharmaceutical technology has made advances possible; the drugs produced by such technology, however, are too expensive for all but the wealthiest patients.

B. If pharmaceutical companies do not find another source of income to balance the losses they experience in producing orphan drugs, such companies will no longer be able to produce those drugs without compromising overall profits.

C. Some patients already request generic pharmaceuticals, when they are available, because they are typically less expensive than name-brand pharmaceuticals.

D. If pharmaceutical companies reduce the costs of producing most drugs, they will be able to earn more profits despite the new law, and thus will be able to balance the losses they experience from the production of orphan drugs.

E. Even though charitable organizations that fund research into the rare diseases treated by orphan drugs provide some donations to offset the costs of the drugs, such donations are declining.

The correct answer is B. Any question that asks you about "what must be true" is essentially asking you to make an inference on the basis of the data provided, and we can classify all such questions in the same category.

The challenge with GMAT inference questions is that the answer we pick cannot be false in any circumstances. This means that the correct answer should ALWAYS be true with NO additional assumptions.

Option A - All we know is that the prices are inflated. We have ZERO information on whether only the wealthy can afford these drugs or not. What is also important to note is that you should never bring external knowledge into play, so whatever you may know or think about how healthcare currently functions in the US, there is no information in the question that backs up anything about affordability on the consumer side. Hence, this answer is OUT

Option B - The info we've been given is that pharma companies subsidise orphan drugs by charging more for popular ones, and that this is how they maintain profits. If the regulation comes into play, they will not be able to make the same profit UNLESS there's another source of income. This is exactly what the option states and most importantly, it makes no further claims. This answer is therefore the CORRECT answer.

Option C - Once again, this could be something that is true in real life, but there is ZERO evidence to back this up. Remember that when you're trying to eliminate an option in an inference question, all you have to do is show that there is even a minute possibility the statement can be false. It is possible, based on the data we've been given that NO patients currently already request generics (since we have no information on this front, anything is possible). Hence, we can eliminate this option. OUT

Option D - This is a bit of a trap answer. At first glance, it at least deals with profits and the production of drugs. However, if the cost of producing drugs are lowered, it would necessarily lower the selling price, since the new rule states that the selling price MUST be based on the cost price. Hence, it is unclear that profits would increase. In fact, saying the profits will increase for sure is already a pretty extreme answer. Remember that the option you pick CANNOT be false in any condition. This option is therefore OUT.

Option E - This is a super unrelated claim, we have no info on charitable donations, and cannot say anything about whether they are declining or not. Hence, there's no way to say that this option is definitively true. OUT

- Matoo from CrackVerbal
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Re: Pharmaceutical companies typically charge slightly inflated prices for  [#permalink]

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06 Mar 2019, 23:27
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Bunuel wrote:
Pharmaceutical companies typically charge slightly inflated prices for drugs that have a large customer base and are heavily prescribed by doctors, in order to balance the losses such companies experience from producing “orphan” drugs—drugs that are used by so few patients that they can never be profitable. New federal regulations require pharmaceutical companies to limit the price they charge for any drug to cost plus a predetermined percentage profit.

If the statements above are true, which of the following must also be true?

A. New pharmaceutical technology has made advances possible; the drugs produced by such technology, however, are too expensive for all but the wealthiest patients.

B. If pharmaceutical companies do not find another source of income to balance the losses they experience in producing orphan drugs, such companies will no longer be able to produce those drugs without compromising overall profits.

C. Some patients already request generic pharmaceuticals, when they are available, because they are typically less expensive than name-brand pharmaceuticals.

D. If pharmaceutical companies reduce the costs of producing most drugs, they will be able to earn more profits despite the new law, and thus will be able to balance the losses they experience from the production of orphan drugs.

E. Even though charitable organizations that fund research into the rare diseases treated by orphan drugs provide some donations to offset the costs of the drugs, such donations are declining.

OFFICIAL EXPLANATION:

B

This is an inference question, so the correct answer will be something you know from the argument.

(A) No. We have no information about the drugs’ cost to the patient.

(B) Yes. If the companies can no longer place surcharges on more popular drugs, they will lose the sources of revenue that balance the losses from orphan drugs. They will have to find other revenue sources or lose money.

(C) No. The passage provides no information about generic drugs—it’s out of scope.

(D) No. This is contradicted by the argument, which says there will be a constant percentage of profit allowed. So if drug costs are reduced, the profit should be commensurately reduced.

(E) No. There is no information in this argument about charitable organizations and offsetting of costs.
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Re: Pharmaceutical companies typically charge slightly inflated prices for  [#permalink]

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03 Apr 2019, 03:25
Bunuel wrote:
Bunuel wrote:
Pharmaceutical companies typically charge slightly inflated prices for drugs that have a large customer base and are heavily prescribed by doctors, in order to balance the losses such companies experience from producing “orphan” drugs—drugs that are used by so few patients that they can never be profitable. New federal regulations require pharmaceutical companies to limit the price they charge for any drug to cost plus a predetermined percentage profit.

If the statements above are true, which of the following must also be true?

A. New pharmaceutical technology has made advances possible; the drugs produced by such technology, however, are too expensive for all but the wealthiest patients.

B. If pharmaceutical companies do not find another source of income to balance the losses they experience in producing orphan drugs, such companies will no longer be able to produce those drugs without compromising overall profits.

C. Some patients already request generic pharmaceuticals, when they are available, because they are typically less expensive than name-brand pharmaceuticals.

D. If pharmaceutical companies reduce the costs of producing most drugs, they will be able to earn more profits despite the new law, and thus will be able to balance the losses they experience from the production of orphan drugs.

E. Even though charitable organizations that fund research into the rare diseases treated by orphan drugs provide some donations to offset the costs of the drugs, such donations are declining.

OFFICIAL EXPLANATION:

B

This is an inference question, so the correct answer will be something you know from the argument.

(A) No. We have no information about the drugs’ cost to the patient.

(B) Yes. If the companies can no longer place surcharges on more popular drugs, they will lose the sources of revenue that balance the losses from orphan drugs. They will have to find other revenue sources or lose money.

(C) No. The passage provides no information about generic drugs—it’s out of scope.

(D) No. This is contradicted by the argument, which says there will be a constant percentage of profit allowed. So if drug costs are reduced, the profit should be commensurately reduced.

(E) No. There is no information in this argument about charitable organizations and offsetting of costs.

But, we never knew the amount of profits that are predetermined. I mean to say that, the predetermined profit "could" be way high and infact could lead these manufacturers to earn higher profits than before.
Re: Pharmaceutical companies typically charge slightly inflated prices for   [#permalink] 03 Apr 2019, 03:25
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