Please rate my GMAT AWA #3
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30 Sep 2016, 00:38
Prompt:
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 you find this argument. In your discussion be sure to analyze the line of reasoning and
the use of evidence in the argument. For example, you may need to consider what questionable assumptions
underlie the thinking and what alternative explanations or counterexamples might weaken the conclusion. You can
also discuss what sort of evidence would strengthen or refute the argument, what changes in the argument would
make it more logically sound, and what, if anything, would help you better evaluate its conclusion.
My response:
The argument in the annual report to stockholders of Olypmic foods that as the organization enters it's 25th year, it will be able to minimize costs and thus maximize profits appears flawed on several fronts. It is based on a couple of far reaching conclusions which are supported by vague facts. The argument fails to take a comprehensive view on all factors that impact profitability and draw weak analogies to the color film processing industry.
The argument that all organizations over time become efficient and thus are able to reduce costs is very generic in nature and can have exceptions. The argument fails to take into account that dynamics of an organization are closely related to the industry and that all industries are not similar. Thus the comparison of food processing industry with the color processing industry appears vague. Facts that provide ample proof of similarity between the two industries can help in strengthening the argument.
Even if the the two industries are similar, only one product of the color film processing industry has been discussed. The report does not mention if the reduction in cost was a phenomenon that occurred for all products in the color film processing industry. The argument also considers efficiency as the only driver that decreases costs and processing time. Other factors like economies of scale, cost of raw materials, cost and availability of skilled labor and technological improvements have not been considered.
The macroeconomic situation from 1970 to 1984 is not the same as today and thus the economic factors that helped color film processing industry might not help Olypmic foods. Further, the report does not provide any evidence on the efforts taken by Olypmic foods to reduce costs. Finally, the argument that profits can be maximized is not justified as reduction on costs may not necessarily imply increase in profits. Revenue growth coupled with decrease in costs can explain increase in profits better.
The report to the stockholders thus contains several assumptions that cannot be reasonably justified and thus is severely flawed.