Several governments in Asia have traditionally raised extra government

Can someone explain why D is wrong? By reducing operational costs , profits can be increased. In that case the asian companies can continue to do social service. Can you explain the mistake in this thought process.

Argument:
Several governments in Asia have traditionally raised extra government revenue by setting up factories to sell goods in United States.
The profits from these have been used to fund social services in these countries.
American retailers have recently put significant pricing pressure on the factories, reducing the profits by 90%.

Since profits have reduced substantially, it is logical that the social services program will be impacted since the profit was being used for social services. So then, either other sources of revenue need to be found or the level of social service expenditure needs to be cut or debt needs to be incurred to maintain the current level of social services. This is option (B).
Let's look at other options too.

A.The Asian governments cited in the stimulus generally provide large amounts of social services for their citizens, such as free health care to the poor.
The level of social services provided by the Govt is not known. Perhaps it is bare minimum for a large population, perhaps it is a lot.

C. Some large retailers in the United States are making record profits by squeezing price concessions from their main suppliers in Asia.
We don't know why price cuts were made by US retailers. Perhaps their revenues have dwindled, perhaps their other costs have sky rocketed, or perhaps they wanted higher profit margin, we don't know.

D. If the Asian governments cited were to reduce the operating costs of their factories, they would be able to continue running the social service programs at the current levels.
Not known. Can a reduction in operating costs make up for all the lost revenue (to maintain social service programs at current levels)? We don't know. Perhaps the operating costs are minimal, perhaps the major cost is servicing the debt which was required to set up the factories. Perhaps even if the operating costs are made 0, the 90% drop in profit can still not be made up. The point is, from the given information, we cannot conclude this.

E.The level of taxation in Asian countries is generally lower than the levels in the United States and other Western developed countries.
No mention of the level of taxation. Not relevant.

Answer (B)

Hi,

I think the word choice in option B is not correct: 'incur debt to keep them at their present level' -> we could interpret that the debt might be used to maintain current operation. Thanks.

Slight confusion, may be that all the profits the asian companies are getting may or may not be used in providing social services and even after having 10% (after 90% reduction of their profits) profit they are abe to provide the same services as before. Had it been written in the paragraph that all the profts were going to the social services, then it would be obviously true that the services would have been affected hence option B would be a sure shot.
Requesting the members for resolving this concern of mine.

I am confused as to how we can infer option B as well. What if they chose a combination of both options? What if there is a third option to negotiate? Please correct me if I am wrong. Thank you.

The information in the stimulus suggests that the profits from government-run factories in Asia, which were used to fund social services, have been significantly reduced due to pricing pressure from American retailers. To draw a conclusion based on this information, we need to consider the implications.

(B) If the governments cited in the stimulus do not find alternative sources of revenue, they must either cut the level of the social services funded by the enterprises or incur debt to keep them at their present level.

This conclusion is best supported by the information provided. If the profits from the factories are reduced by over 90 percent, it's likely that the governments will either have to cut the funding for social services or find alternative sources of revenue to maintain the current level of these services. This conclusion directly follows from the information given in the stimulus.

Lmao. this question is trash itself along with your reasoning.
the same reasons you are eliminating option D also stands for option B. we CANNOT infer for option B that these American large enterprises constitutes HIGH part of profits altogether. may be Asian large enterprises constitutes 99.9% of the profits for govt. (10000000000 large enterprises from Asia and just 2 enterprises from America which reduced price)
secondly, we also cant conclude that this reduction in profits is so detrimental that the governments have to resort to debt or other sources (as if they already have just merely 0.0001% of their profits from american enterprises then the reduction here wont even affect government profits.)

What if their operating cost is already too low? Would that help them cover for the decrease in profit resulting due to 90% of price cut? Not necessary, right? Hence, the focus of the question should be on getting the revenue from elsewhere or maintain the same level of revenue for the government to keep doing its social services.