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Tariffs on imported manufactured goods

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Tariffs on imported manufactured goods [#permalink]

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07 Feb 2010, 11:13
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Country X imposes heavy tariffs on imported manufactured goods. Company Y has determined that it could increase its profits in the long term by opening a factory in Country X to manufacture the goods that it currently produces in its home country for sale in Country X.

For Company Y's determination to be true, which of the following assumptions must also be true?
A: Company Y will be able to obtain all the necessary permits to open a factory in Country X.
B: Company Y currently produces no goods outside its home country.
C: A sustainable market for Company Y's goods currently exists in Country X.
D: Company Y's home country does not impose tariffs on imported goods.
E: Labor costs in Country X are lower than those in Company Y's home country.

The answer to the question is C, with this explanation from MGMAT:
In order for Company Y to conclude that it can increase long-term profits by opening a factory in Country X, it must believe that a sustainable market exists for its products in that country. Otherwise, the new factory would not generate revenue and the company could not recoup the cost of the new factory.

What I don't get: how can C be right because the passage states that company Y currently produces goodsfor sale in country X.... so we know that there is a market for comany Y in country X, no?

What am I missing?
[Reveal] Spoiler: OA

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Re: Tariffs on imported manufactured goods [#permalink]

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09 Feb 2010, 19:04
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Hey All,

This is a tough question, and since it's one of ours, I figured I had to weigh in.

Conclusion: Company Y could increase profits by putting factory in Country X
Premise: Country X has heavy tariffs on imports
Assumption: People actually buy Company Y's stuff in Country X

This is a tough question because of answer choice A. You're supposed to look at it and say "Well, if they can't even open the factory, won't that negate the conclusion?" And you'd be right, if not for one little word in the passage: could. If this passage said, Company Y WILL make a big profit next year by building a factory, then answer choice A would be correct, because that makes it impossible for them to actually build the factory.

But this passage merely says they "could" make a profit by opening the factory. In this hypothetical universe, the factory has already opened. Whether or not there are impediments to making this happen is immaterial. The issue is whether the existence of the factory will make them a profit.

A: Company Y will be able to obtain all the necessary permits to open a factory in Country X.
Problem: We don't need to know how hard it is to make the factory. The conclusion implies that the factory is already open.

B: Company Y currently produces no goods outside its home country.
Problem: This has no connection to whether or not they will make money if they DO produce goods outside the home country.

C: A sustainable market for Company Y's goods currently exists in Country X.
Answer: You can't make a profit if nobody's buying, no matter how many tariffs you dodge.

D: Company Y's home country does not impose tariffs on imported goods.
Problem: This doesn't matter, because Company Y wants to make a profit on goods sold in Country X.

E: Labor costs in Country X are lower than those in Company Y's home country.
Problem: This strengthens the argument a bit (because the factory in Country X will be cheaper, leading to potential profit), but it isn't necessary. If we take the negation ("Labor costs in Country X are NOT lower than in Country Y), the argument does not fall apart.

Hope that helps!
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Re: Tariffs on imported manufactured goods [#permalink]

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10 Feb 2010, 11:24
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Hey Nverma,

It's a tough question, but the answer is definitely C. You have to stay REALLY close to what's written.

The passage says that the company has concluded it COULD increase profits by OPENING a factory. So the issue isn't whether it is possible to open a factory, but whether IF THE FACTORY WERE OPENED, it would make a profit.

Answer choice A tells us that it will be difficult to open the factory, but that is unrelated to the conclusion. We're only interested in whether or not an OPEN FACTORY would be profitable. There is no need to differentiate between long-term and short-term profits, or between present and future profits. This is about a hypothetical situation in which the factory is open. Only C relates to this.

Hope that helps!
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Re: Tariffs on imported manufactured goods [#permalink]

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14 Feb 2010, 14:32
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nifoui wrote:
The answer to the question is C, with this explanation from MGMAT:
In order for Company Y to conclude that it can increase long-term profits by opening a factory in Country X, it must believe that a sustainable market exists for its products in that country. Otherwise, the new factory would not generate revenue and the company could not recoup the cost of the new factory.

What I don't get: how can C be right because the passage states that company Y currently produces goodsfor sale in country X.... so we know that there is a market for comany Y in country X, no?

What am I missing?

Don't miss the word 'sustainable'. Country X is selling its products today means that its products have a market today. That doesn't ensure that the products will have market tomorrow also. It's whole plan is based on long term gains. What use id it of if it opens a factory today & has a market today but 2 years down the line it realizes that its market has ceased to exist.

A & E are lucrative options but out of the scope of the problem.
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Re: Tariffs on imported manufactured goods [#permalink]

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18 Jan 2013, 23:06
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heavy tariff on imported goods to Country Y is cost...
manufacture in Country Y will increase profit...

(B) is irrelevant to the profit increase...
(D) attempts to reverse the situation... tariff on Country Y for imported goods is another story...

To increase profits: decrease cost, increase market/sales
(E) and (C) seem to be relevant to increase in profits BUT Labor Cost will need us to assume more than what is given...

(C) on the other hand, is about having a market which is a basic requirement to making sales...
If there is no market, how can profit increase?

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Re: Tariffs on imported manufactured goods [#permalink]

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12 Aug 2014, 00:48
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P1:Country X imposes heavy tariffs on imported manufactured goods.
P2:Company Y has determined that it could increase its profits in the long term by opening a factory in Country X to manufacture the goods that it currently produces in its home country for sale in Country X.

Conclusion:
Y could increase its profits in the long term by opening a factory in Country X to manufacture the goods that it currently produces in its home country for sale in Country X.

How?
Because Country X imposes heavy tariffs on imported manufactured goods.So by manufacturing the product within the contry X, the import tariffs can be avoided.

For Company Y's determination to be true, which of the following assumptions must also be true?
A: Company Y will be able to obtain all the necessary permits to open a factory in Country X.
>> Permit is not concern as per the mentioned argument.Concern is related to profit earned on the good , so focus on the factors that can leads to product sale/price etc.

B: Company Y currently produces no goods outside its home country.
>> Clearly no relevance to the argument.

C: A sustainable market for Company Y's goods currently exists in Country X.
>> sustainable market => This is a crucial factor.If the demand for the product is low then sale would be less and certainly brings the conclusion under doubt.

D: Company Y's home country does not impose tariffs on imported goods.
>> As per the arg , the goods in question are the one that Y currently produces in its home country for sale in Country X.

E: Labor costs in Country X are lower than those in Company Y's home country.
>>This is a tempting option.
What if the saving from the import tariff is cancelled out by the labour cost. But what makes C betters than E is that there are lots of loose ends here e.g. how much costly,may be Y's would transfer employee from Y to X etc.
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Re: Tariffs on imported manufactured goods [#permalink]

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08 Feb 2010, 08:21
nifoui wrote:
Here is a 700-800 level question from MGMAT:

Country X imposes heavy tariffs on imported manufactured goods. Company Y has determined that it could increase its profits in the long term by opening a factory in Country X to manufacture the goods that it currently produces in its home country for sale in Country X.

For Company Y's determination to be true, which of the following assumptions must also be true?
A: Company Y will be able to obtain all the necessary permits to open a factory in Country X.
B: Company Y currently produces no goods outside its home country.
C: A sustainable market for Company Y's goods currently exists in Country X.
D: Company Y's home country does not impose tariffs on imported goods.
E: Labor costs in Country X are lower than those in Company Y's home country.

The answer to the question is C, with this explanation from MGMAT:
In order for Company Y to conclude that it can increase long-term profits by opening a factory in Country X, it must believe that a sustainable market exists for its products in that country. Otherwise, the new factory would not generate revenue and the company could not recoup the cost of the new factory.

What I don't get: how can C be right because the passage states that company Y currently produces goodsfor sale in country X.... so we know that there is a market for comany Y in country X, no?

What am I missing?

IMO its A.

C talks about the current situation. No information is there about the long term demands.
Also if we negate A, the argument falls apart.
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Re: Tariffs on imported manufactured goods [#permalink]

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08 Feb 2010, 15:19
I know, I replied A too, but the real answer is C...
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Re: Tariffs on imported manufactured goods [#permalink]

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08 Feb 2010, 20:17
Read the 2nd statement carefully, "Company Y has determined that it could increase its profits in the long term"....To be successful in its planning, Company Y is assuming that the demand of the product will continue in future.

Rest of the assumptions as in A and labor costs in other choice will come next.
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Re: Tariffs on imported manufactured goods [#permalink]

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10 Feb 2010, 03:16
TommyWallach wrote:
Hey All,

This is a tough question, and since it's one of ours, I figured I had to weigh in.

Conclusion: Company Y could increase profits by putting factory in Country X
Premise: Country X has heavy tariffs on imports
Assumption: People actually buy Company Y's stuff in Country X

This is a tough question because of answer choice A. You're supposed to look at it and say "Well, if they can't even open the factory, won't that negate the conclusion?" And you'd be right, if not for one little word in the passage: could. If this passage said, Company Y WILL make a big profit next year by building a factory, then answer choice A would be correct, because that makes it impossible for them to actually build the factory.

But this passage merely says they "could" make a profit by opening the factory. In this hypothetical universe, the factory has already opened. Whether or not there are impediments to making this happen is immaterial. The issue is whether the existence of the factory will make them a profit.

A: Company Y will be able to obtain all the necessary permits to open a factory in Country X.
Problem: We don't need to know how hard it is to make the factory. The conclusion implies that the factory is already open.

B: Company Y currently produces no goods outside its home country.
Problem: This has no connection to whether or not they will make money if they DO produce goods outside the home country.

C: A sustainable market for Company Y's goods currently exists in Country X.
Answer: You can't make a profit if nobody's buying, no matter how many tariffs you dodge.

D: Company Y's home country does not impose tariffs on imported goods.
Problem: This doesn't matter, because Company Y wants to make a profit on goods sold in Country X.

E: Labor costs in Country X are lower than those in Company Y's home country.
Problem: This strengthens the argument a bit (because the factory in Country X will be cheaper, leading to potential profit), but it isn't necessary. If we take the negation ("Labor costs in Country X are NOT lower than in Country Y), the argument does not fall apart.

Hope that helps!

If we see the question stem, we have been asked "For Company Y's determination to be true, which of the following assumptions must also be true".
whether the determination only includes making profits...??
What i understand the determinations starts "from building up a factory........ to profit generation".

Also "C" only talks about the "current" market condition, it doesn't forecast the market conditions in future.And Company is looking for long term profits....NOT current profits.

IMO A is better than C.
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Re: Tariffs on imported manufactured goods [#permalink]

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09 Jul 2010, 02:06
Even I got A ......
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Re: Tariffs on imported manufactured goods [#permalink]

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09 Jul 2010, 02:27
I agree with Tommy Wallach and honeyrai.
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Re: Tariffs on imported manufactured goods [#permalink]

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23 Jul 2010, 10:55
wow !! i am glad that I marked C ..and agree with Honeyrai. The key word for me is sustainable..

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Re: Tariffs on imported manufactured goods [#permalink]

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28 Jul 2010, 21:41
I was tempted by A .......but persisted with C ...........don't know if its all my merit because i have seen C already below accidentally ....
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Re: Tariffs on imported manufactured goods [#permalink]

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28 Jul 2010, 21:41
But .I agree with the explanations above ...........C is much better than A ......
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Re: Tariffs on imported manufactured goods [#permalink]

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12 Sep 2010, 06:07
Its clearly C...If no sustainable market in X no point in opening a plant to sell goods in X
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Re: Tariffs on imported manufactured goods [#permalink]

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12 Sep 2010, 07:52
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well i willl go for C in one reading only..

I think if one company doest have sustainable market in some country whats the use in getting all permits cleared and cheap labour cost....

Infact it might be a dead investment..........

C...............:D
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Re: Tariffs on imported manufactured goods [#permalink]

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13 Sep 2010, 02:36
I went with C too
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Re: Tariffs on imported manufactured goods [#permalink]

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07 Jun 2012, 04:23
There is one more point that nobody seemed to touched on. Company is concerned about long term profit. Answer choice C provides sustainable market to the company. Hence, long term profitability can be ensured.
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Re: Tariffs on imported manufactured goods [#permalink]

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07 Jun 2012, 21:48
This is tempting and tricky question. Between choice A and C. The word "could" make long-term profit is the most important word to decide which choice is correct. Choice A states that Y will be able (not could)....

Choice C states the sustainable market ensure the long-term profit of producing goods in X as the conclusion of the passage stated.
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Re: Tariffs on imported manufactured goods   [#permalink] 07 Jun 2012, 21:48

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