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# To protect certain fledgling industries, the government of country Z b

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Re: To protect certain fledgling industries, the government of country Z b [#permalink]
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Hi avigutman

avigutman wrote:
I think what you're asking, jabhatta2, is: does ability to compete effectively == ability to be profitable?.

If there is an increase in the price of inputs, the export-dependent industries have 2 options:

(1) Absorb the price increase internally by taking a hit on profit margins.
OR
(2) Pass on the input price increase to its customers by increasing the prices of its products.

Which option, between the two, did you think happened when you read the sentence "the cost of those products to the buyers went up, sharply limiting the ability of those industries to compete effectively in their export markets.

I thought the export dependent industries performed (1) when I read the blue sentence [I think that may have been wrong]

Did you think the export dependent industries performed (2) or performed (1) or we cant tell when you read the blue phrase ?
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Re: To protect certain fledgling industries, the government of country Z b [#permalink]
jabhatta2 wrote:
Hi avigutman

avigutman wrote:
I think what you're asking, jabhatta2, is: does ability to compete effectively == ability to be profitable?.

If there is an increase in the price of inputs, the export-dependent industries have 2 options:

(1) Absorb the price increase internally by taking a hit on profit margins.
OR
(2) Pass on the input price increase to its customers by increasing the prices of its products.

Which option, between the two, did you think happened when you read the sentence "the cost of those products to the buyers went up, sharply limiting the ability of those industries to compete effectively in their export markets.

I thought the export dependent industries performed (1) when I read the blue sentence [I think that may have been wrong]

Did you think the export dependent industries performed (2) or performed (1) or we cant tell when you read the blue phrase ?

If you could pass the added costs on to consumers, you would. If you can't pass them on (because your competitors would be able to undercut your higher prices), then you take the hit. If that hit prevents you from being profitable, then you are no longer able to compete effectively, jabhatta2.
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Re: To protect certain fledgling industries, the government of country Z b [#permalink]
Thanks avigutman

avigutman wrote:
If you could pass the added costs on to consumers, you would. If you can't pass them on (because your competitors would be able to undercut your higher prices), then you take the hit. If that hit prevents you from being profitable, then you are no longer able to compete effectively, jabhatta2.

The red (I think) is a bit subjective -- It really depends on the context and depends per owner.

Example – Your startup - Quant Reasoning.com

Avi's costs go up but Avi cannot increase monthly subscription fees to students. So, Avi has eat up the profit margin obviously.

Let’s say your monthly profit reduces drastically from 100\$/month to 1 \$/month

Are you going to keep quant-reasoning.com running (if you make 1 \$/month only in profit)

You would say --- “Arghhh its just not worth it. Just 1 \$/month in profits !”

Its just not worth it'

I thought of this scenario ALSO when I came across the phrase "sharply limit your ability to compete effectively".
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Re: To protect certain fledgling industries, the government of country Z b [#permalink]
jabhatta2 wrote:
You would say --- [i]“Arghhh its just not worth it. Just 1 \$/month in profits !”

That's your mistake right there, [b]jabhatta2. Profit is what you are left with after accounting for all of your expenses. So, \$1/month in profits is still a profitable business, why close it? When you say "it's just not worth it", what do you mean? It's just not worth what??
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Re: To protect certain fledgling industries, the government of country Z b [#permalink]
Hi avigutman - thanks for the repsonse

avigutman wrote:
When you say "it's just not worth it", what do you mean? It's just not worth what??

avigutman wrote:
That's your mistake right there, jabhatta2. Profit is what you are left with after accounting for all of your expenses. So, \$1/month in profits is still a profitable business, why close it?

If you are spending say 100 hours per month to run / maintain / answer questions / conduct classes for quant reasoning.com

And all you are getting is a profit of 1 \$ / month – you should shut quant reasoning.com down

It’s not worth your time (per my opinion)

You can work at mcdoalds for 100 hours per month instead earn at least 1600 \$ (more than 1 \$ per month)

Hence - Avi is not competitive given he is earning 1 \$ in profits from quant reasoning.com because he can make MORE than 1 \$ in profit working at Mcdonalds (working the same number of hours)

Thats how i thought of "compete effectively"

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Re: To protect certain fledgling industries, the government of country Z b [#permalink]
jabhatta2 wrote:
avigutman wrote:
When you say "it's just not worth it", what do you mean? It's just not worth what??
My time (my CEO salary) is already accounted for in the expenses, jabhatta2. I think you just need to brush up on the meaning of "profit" and "profit margins".
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Re: To protect certain fledgling industries, the government of country Z b [#permalink]
Hi KarishmaB

KarishmaB wrote:
We are given that when the cost of these buyers went up, these buyers could not compete effectively in their markets (they export their goods).
So they could not manage to keep selling price same and had to increase it. That made their products in the market expensive and hence they were unable to compete.

The sentence in red confused me

How are you so sure that the selling price of the export oriented buyer has definitely gone up?

Perhaps the selling price of the buyer has stayed the same but the profit margin has reduced from 20 \$ /unit to 1 \$ / unit only.

Isnt same price but very extremely low profit margins an example of "sharply limiting the ability of those industries to compete effectively in their export markets."
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Re: To protect certain fledgling industries, the government of country Z b [#permalink]
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jabhatta2 wrote:
Hi KarishmaB

KarishmaB wrote:
We are given that when the cost of these buyers went up, these buyers could not compete effectively in their markets (they export their goods).
So they could not manage to keep selling price same and had to increase it. That made their products in the market expensive and hence they were unable to compete.

The sentence in red confused me

How are you so sure that the selling price of the export oriented buyer has definitely gone up?

Perhaps the selling price of the buyer has stayed the same but the profit margin has reduced from 20 \$ /unit to 1 \$ / unit only.

Isnt same price but very extremely low profit margins an example of "sharply limiting the ability of those industries to compete effectively in their export markets."

When the cost for certain sellers in a competitive industry goes up, they would try to keep the selling price same (i.e. let the profit margin reduce) to stay competitive.
If I sell shoes for \$100 a pair in a competitive shoe market and my cost is \$75, great! I have a profit margin of 25%.
If my cost goes up to \$90, I could keep selling the shoes for \$100 with a 10% profit margin. The business would stay competitive.

What if my cost goes up to \$110? Now I cannot sell shows for \$100. I need to increase the selling price to \$120 and I would find that I am not competitively priced any more. I may lose most of my business.

In the original question, since we are given that cost went up and they were unable to stay competitive, that means profit margin could not absorb the cost.
Note that there is no other option that is at all suitable. Hence, this is the best.
CR brings real world examples and often they are not airtight. That is why we are only asked the 'best of the 5' so it's best to focus on that.
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Re: To protect certain fledgling industries, the government of country Z b [#permalink]
GMATGuruNY wrote:
varotkorn wrote:
Q1. Why is choice A. correct? The passage does not even mention about the profit at all.

An inference is a statement that MUST BE TRUE, given the information in the passage.
Apply the NEGATION TEST.

A, negated:
Profit margins in those industries were high enough to absorb the rise in costs.
Implication:
The rise in costs did not limit the ability of those industries to compete -- contradicting the following information in the passage:
The cost...went up, sharply limiting the ability of those industries to compete.
Since the negation of A contradicts the passage, A is a valid inference: a statement that MUST BE TRUE, given the information in the passage.

Quote:
Q2. Why is choice D. wrong?

D: Steps to offset rising materials costs by decreasing labor costs were taken in those industries.

The passage offers no information about whether companies attempted to decrease labor costs.
Eliminate D.

GMATGuruNY
Negation technique be applied to every inference questions
if it's true then negation technique just works for assumption and inference only or there any other type of questions for which negation technique works
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Re: To protect certain fledgling industries, the government of country Z b [#permalink]
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saby1410 wrote:
Negation technique be applied to every inference questions
if it's true then negation technique just works for assumption and inference only or there any other type of questions for which negation technique works

The negation technique should work for any CR that asks for an assumption or an inference.
I would not apply this technique to other types of CRs.
For another example in which I apply the negation technique to determine the correct answer to an inference CR, click here.
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Re: To protect certain fledgling industries, the government of country Z b [#permalink]
I know it is a CR question but it was really hard to understand. The word "Those industries" has been used twice in this question. First "those industries" refers to certain fledgling industries but there is confusion about the second "those industries" in the last sentence. Is it referring to export-dependent industries or certain fledgling industries? It created a big confusion for me. Also, the question asked for a conclusion regarding export-dependent industries which is best supported by the question. I don't know it is me only who is feeling odd regarding the language to ask for conclusion support. Thanks in advance for your help but I want to know that Is it just me or if there are really some issues regarding the language of this question?
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Re: To protect certain fledgling industries, the government of country Z b [#permalink]

Quote:
To protect certain fledgling industries, the government of country Z banned imports of the types of products those industries were starting to make. As a direct result, the cost of those products to the buyers, several export-dependent industries in Z, went up, sharply limiting the ability of those industries to compete effectively in their export markets.

Which of the following conclusions about country Z's adversely affected export-dependent industries is best supported by the passage?

(A) Profit margins in those industries were not high enough to absorb the rise in costs mentioned above.

(B) Those industries had to contend with the fact that other countries banned imports from country Z.

(C) Those industries succeeded in expanding the domestic market for their products.

(D) Steps to offset rising materials costs by decreasing labor costs were taken in those industries.

(E) Those industries started to move into export markets that they had previously judged unprofitable.

To answer this question, let us deploy IMS's four-step technique

STEP #1 -> IDENTIFY THE QUESTION TYPE

To identify the question type, we need to read the question stem. The stem states, 'Which of the following conclusions about country Z's adversely affected export-dependent industries is best supported by the passage?' What we have is a conclusion question.

Now that the question type is identified, let us proceed to the second step.

STEP #2 -> X-RAY THE PASSAGE

Let us read and understand the passage. Let us also state the facts we come across while reading.

FACT #1 -> To protect certain fledgling industries, the government of country Z banned imports of the types of products those industries were starting to make.FACT #2 -> As a direct result, the cost of those products to the buyers, several export-dependent industries in Z, went up, sharply limiting the ability of those industries to compete effectively in their export markets.

We can infer that the government of country Z banned imports of the types of products that certain fledgling industries were beginning to make and that the cost of such products went up as a result of the ban. We can also infer that the buyers of these products were actually several export-dependent industries in the same country. These buyer industries' ability to compete effectively in their export markets got limited thanks to the government ban.

Now that the argument is x-rayed, let us proceed to the third step.

In a conclusion question, the right answer links the unlinked terms or summarizes the entire passage. The right answer should also be 100 percent validated by the information stated in the passage.

STEP #4 -> PROCESS OF ELIMINATION

Answer options that go beyond the scope of the passage can be eliminated.

(A) Profit margins in those industries were not high enough to absorb the rise in costs mentioned above. - MATCHES THE SHADOW ANSWER - This answer option summarizes the info stated in the passage. If the increase in cost of the products sharply limited the ability of the buyer industries to compete effectively in the export markets, it is safe to conclude that profit margins in those industries were not high enough to absorb the rise in costs. - KEEP

(B) Those industries had to contend with the fact that other countries banned imports from country Z. - NOT A MATCH - Not worried about other countries. - ELIMINATE

(C) Those industries succeeded in expanding the domestic market for their products. - NOT A MATCHJust because the increase in cost of the products sharply limited the ability of the buyer industries to compete effectively in the export markets, we cannot draw the conclusion that the industries succeeded in expanding the domestic market for their products. - ELIMINATE

(D) Steps to offset rising materials costs by decreasing labor costs were taken in those industries. - NOT A MATCH - Based on the facts we have, we cannot conclude that steps to offset rising materials costs were taken. - ELIMINATE

(E) Those industries started to move into export markets that they had previously judged unprofitable. - NOT A MATCH - Based on the stated facts, it is not plausible to conclude that those industries started to move into export markets that had previously been judged as unprofitable. - ELIMINATE

Hence, A is the correct answer.

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