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Ritesh92gmat
Joined: 26 Jul 2020
Last visit: 13 Jul 2022
Posts: 40
Own Kudos:
Given Kudos: 175
Location: India
Schools: Rotman '24
GMAT 1: 690 Q51 V34
01 Oct 2020, 11:55
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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 above argument claimed that long experiences over time help industries to reduce their processing cost, helping them to maximize their profit. And hence, Olympic Foods, an organization, is expecting same as it is completing its 25th anniversary. To substantiate the argument, the author has given an example of color film processing in which printing cost has reduced over time.
Although the argument may initially seem plausible , it has used analogy between two industries without proper reasoning, vulnerable assumption about the reason of printing cost, and illogical relation between price and cost.
Firstly, the argument has correlated the cost reduction of printing in color film processing with the industries experiences and their learnings. But no evidences have been given to support the claim that , indeed, the cost has reduced because of improvement in process due to learning experiences over time. Simply stating the fact that printing cost has reduced doesn't really provide weight to the argument. There may be possibility that cost of raw material has reduced during the course of time which has ultimately led to reduction in overall cost.
Secondly, the argument has compared color film processing with the Food industry. But no basis has been provided to support this analogy. Is it the technology used in both industries same ? Is it any way related to each other ? If they are related , then argument must provide evidences to prove that both industries can be compared on this basis. Even though, it is true that experiences help to improve but whether that improvement is going to be same for both industries can't be easily concluded. The argument may have provided at least few industries data to have better sample space and to show that significant cost reduction has been seen because of process improvement as a result of learning experiences.
Thirdly, the argument has falsely related cost with price in the conclusion. Even if we assume that cost reduction can be possible because of log experiences, but that cost reduction will lead to increase in profit is inconclusive. To optimally find the overall profit, we need to look at selling prize of product. There may be possibility that along with cost reduction with time , selling prize has also reduces because competing product has lower their selling prize to gain more market share. In that scenario, it's difficult to find the actual gain in profit. Also, if the cost reduction because of improvement in some particular process is not significant contributing factor in overall cost, it can't be concluded that profit has increased.
In conclusion, upon evaluation, several flaws and lack of proper evidences can be easily found. To strengthen the argument, enough evidences must be given to support the the analogy between two different industries. In addition, the argument should also consider the fact that cost and profit are not directly related.
“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 above argument claimed that long experiences over time help industries to reduce their processing cost, helping them to maximize their profit. And hence, Olympic Foods, an organization, is expecting same as it is completing its 25th anniversary. To substantiate the argument, the author has given an example of color film processing in which printing cost has reduced over time.
Although the argument may initially seem plausible , it has used analogy between two industries without proper reasoning, vulnerable assumption about the reason of printing cost, and illogical relation between price and cost.
Firstly, the argument has correlated the cost reduction of printing in color film processing with the industries experiences and their learnings. But no evidences have been given to support the claim that , indeed, the cost has reduced because of improvement in process due to learning experiences over time. Simply stating the fact that printing cost has reduced doesn't really provide weight to the argument. There may be possibility that cost of raw material has reduced during the course of time which has ultimately led to reduction in overall cost.
Secondly, the argument has compared color film processing with the Food industry. But no basis has been provided to support this analogy. Is it the technology used in both industries same ? Is it any way related to each other ? If they are related , then argument must provide evidences to prove that both industries can be compared on this basis. Even though, it is true that experiences help to improve but whether that improvement is going to be same for both industries can't be easily concluded. The argument may have provided at least few industries data to have better sample space and to show that significant cost reduction has been seen because of process improvement as a result of learning experiences.
Thirdly, the argument has falsely related cost with price in the conclusion. Even if we assume that cost reduction can be possible because of log experiences, but that cost reduction will lead to increase in profit is inconclusive. To optimally find the overall profit, we need to look at selling prize of product. There may be possibility that along with cost reduction with time , selling prize has also reduces because competing product has lower their selling prize to gain more market share. In that scenario, it's difficult to find the actual gain in profit. Also, if the cost reduction because of improvement in some particular process is not significant contributing factor in overall cost, it can't be concluded that profit has increased.
In conclusion, upon evaluation, several flaws and lack of proper evidences can be easily found. To strengthen the argument, enough evidences must be given to support the the analogy between two different industries. In addition, the argument should also consider the fact that cost and profit are not directly related.
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