Over time, the costs of processing go down because as organizations le
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05 Jul 2020, 07:54
Hi everyone, I recently started prepping for the GMAT and I've done my first AWA essay. This was done under the time constraints we see at the exam.
Question:
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 maximise profits."
My answer:
Looking at the assumptions that carry this argument, we can observe many flaws that make the conclusion questionable. I will analyse those assumptions in the following paragraphs.
Firstly, the statement about the efficiency achieved within the color film processing industry presents a certain amount of correlation between experience and cost-minimisation. However, the correlation relationship does not necessarily show that one factor causes the other. It could well be that the reason for the decrease in cost is related to the technological advancement within the sector. Furthermore, the cost minimisation can also be related to economic conditions. If materials within the supply chain decreased in price over time, due to changes in inflation or economic factors, the cost of the product would also decrease. More information on the changes within the film processing industry supply chain and technological changes over 1970-1984 would help strengthen this statement.
Secondly, the argument assumes that the efficiency achieved within the film processing sector should transpose to the frozen foods sector. However, this is a weak assumption. We can observe various differences between the two industries, with regards to supply chains, regulations and customer base. For example, frozen food costs depend on various commodities such as fish, meat, chicken, vegetable prices and so on; all of those being completely unrelated to the supply chain of the film processing sector.
Therefore, due to the aforementioned flaws within reasoning, I will conclude that the argument is not logically sound and needs more information in order to make a coherent conclusion.