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19 Jul 2015, 11:27
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Q: 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 5 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 food will soon celebrate its 25th anniversary, we can expect that our long experience will enable us to minimize costs and thus maximize profits.
AWA answer:
The argument is about how Olympic foods can use its long experience to minimize its cost and maximize its profits. The argument is flawed because long experience alone will not guarantee a decrease in costs and an increase in profits.
First, the argument assumes that the cost of processing goes down when organizations learn to do things in an efficient way. However, the efficiency in process need not be the sole criterion. Other factors like skill of labor, level of technology, external factors like labor unions, government rules, taxes and adaptability to modern methods also play a key role in determining the cost of processing. Had these factors been considered, the argument could have been strengthened.
Second, the argument tries to apply the results of color film processing to food processing. These two cannot be compared because what works for one organization need not specifically work for another organization. Also, the inputs and outputs of both industries are entirely different and hence a comparison between them is flawed.
Third, in the color film processing example, the costs of service in 1984 is compared with cost of service in 1970. This assumption is incomplete in the sense that it assumes the economic situation of the country was same in 1970 and 1984. There could be a lot of other factors such as government policies, cost of labor, machinery etc. that might have changed over the period. Therefore, if the results of the two years were to be compared then other factors need to be taken into account and normalized.
Because the argument has several flaws and leaves out some key issues, it is not persuasive. However, if the flaws in the argument are corrected as above, the argument would have been more convincing.
“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 5 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 food will soon celebrate its 25th anniversary, we can expect that our long experience will enable us to minimize costs and thus maximize profits.
AWA answer:
The argument is about how Olympic foods can use its long experience to minimize its cost and maximize its profits. The argument is flawed because long experience alone will not guarantee a decrease in costs and an increase in profits.
First, the argument assumes that the cost of processing goes down when organizations learn to do things in an efficient way. However, the efficiency in process need not be the sole criterion. Other factors like skill of labor, level of technology, external factors like labor unions, government rules, taxes and adaptability to modern methods also play a key role in determining the cost of processing. Had these factors been considered, the argument could have been strengthened.
Second, the argument tries to apply the results of color film processing to food processing. These two cannot be compared because what works for one organization need not specifically work for another organization. Also, the inputs and outputs of both industries are entirely different and hence a comparison between them is flawed.
Third, in the color film processing example, the costs of service in 1984 is compared with cost of service in 1970. This assumption is incomplete in the sense that it assumes the economic situation of the country was same in 1970 and 1984. There could be a lot of other factors such as government policies, cost of labor, machinery etc. that might have changed over the period. Therefore, if the results of the two years were to be compared then other factors need to be taken into account and normalized.
Because the argument has several flaws and leaves out some key issues, it is not persuasive. However, if the flaws in the argument are corrected as above, the argument would have been more convincing.
Moderator:
