Company X experienced a significant loss of market share over a number

Question

Company X experienced a significant loss of market share over a number of years. To strengthen its market position, the company decided two years ago to increase the percentage of total revenue devoted to research and development. The following year, the company's market share increased by 10 percent. In response, company management further increased the amount of money devoted to research and development.

Which of the following investigations is most likely to yield significant information that would help evaluate whether the company's decision to further increase the research and development budget was warranted?

(A) Determining how many new products the company has created over the past year

(B) Determining the percentage of revenue that other companies devote to research and development

(C) Determining whether any of the company's competitors have withdrawn from the market in the past two years

(D) Determining the maximum percentage of revenue that the company can devote to research and development without affecting the company's production budget

(E) Determining whether all of the company's new products have fared equally well in the marketplace

pqhai · Accepted Answer

Very good question Shailes.

ANALYZE THE STIMULUS: Fact: Company X experienced a significant loss of market share over a number of years Fact: two years ago to increase the percentage of total revenue devoted to RnD. Fact: The following year, the company's market share increased by 10 percent. Conclusion: company management further increased the amount of money devoted to RnD. Pre-thinking: Company X considered RnD expenses made market share increase 10% ==> Question: whether RnD expense was the only factor that made company X market share increase? Any other factor contributed to the increase such as competitors, new regulations, customers’ favors, etc? ANALYZE EACH ANSWER: A)Determining how many new products the company has created over the past year Wrong. The number of new products does not guarantee the increase of market share ==> It may or may not affect the market share, we are not sure ==> Hence, A is wrong. B)Determining the percentage of revenue that other companies devote to research and development Wrong. The percentage of revenue devoted to RnD is just a “hard” fact. You cannot assume more percentage, more increase of market. We need a reason why the percentage links to the market share ==> B does not help. C)Determining whether any of the company's competitors have withdrawn from the market in the past two years Correct. The number of competitors has a direct link to the company X’s market share. If more competitors, company X’s market share may decrease. If fewer competitors, company X’s market share may increase without the help of RnD. D)Determining the maximum percentage of revenue that the company can devote to research and development without affecting the company's production budget Wrong. Same as B. You cannot assume: the more percentage, the more increase of market. Thus, determining the maximum percentage of revenue devoted for RnD does not help. E)Determining whether all of the company's new products have fared equally well in the marketplace Wrong. The same logic as A’s. The fact that “company’s new products have fared equally well” may or may not affect the market share increase, we are not sure ==> Hence, E is wrong Hope it helps a bit.

danzig · Answer

C

If the market share increased because a competitor dissapeared, then the increase in the market share was not caused by the increase in the research and development budget.

So, it's possible that increasing the budget again won't increase the market share.

plumber250 · Answer

Hi -

Firstly. The golden rule of GMAT: It's not about the perfect answer, it's about the best answer. C is clearly the best answer here, so whilst we can debate D, it's not the best answer by anyone's assumption.

The issue with D is that you can't assume: the more percentage, the more increase of market. Thus, determining the maximum percentage of revenue devoted for RnD does not help.

intheend14 · Answer

I felt that B and D were irrelevant. I was picking between A, C and E. Both A and E are based on how products are doing in the marketplace. However, C seems best because it deals with the marketplace. Remember that with evaluate questions, the answer should be a yes or no and that should be the ultimate decider on the answer.

If competitors left the marketplace, there's no need to spend more money on R&D and the exit of companies allowed an increase in marketshare. However, if non left, then maybe it was the increased R&D expenses that let the market share grow.

pradeepss · Answer

Good question.

Clearly it between C and E, other options are not relevant to the argument.

C. does anyone competes with the companies product for past 2 years?
Yes --> lets keep that R&D budget.
No --> Lets reevaluate. maybe we don't need to spend anymore money.
Best Answer.

E. did our products fared well in marketplace?
Yes --> well R&D budget stays
No --> well R&D budget must stay.
Cant decide anything here. Eliminate this choice.

aadit1984 · Answer

Correct Answer: C Because if some competitors have left the market then no need to increase the R&D, and if the market structure remains the same in that case the company has to increase the R&D to increase its market share. pradeepss : The problem with Option E is the modifier ALL (Very often GMAT plays on this trick 8-)

) How the YES/NO analysis will help over here: Did ALL of the NEW products of the company fare well? YES....Great, in that case the increase in the R&D budget is totally warranted However, Did ALL of the NEW products of the company fare well? NO.....well, in this case we cannot decide whether the increase in the R&D budget was warranted or not. Because even if one product did well, and increased the market share by little as 10% then it would justify increasing the R&D. Hope that helps!

souvik101990 · Answer

market share: company's sales/ total industry or market sales

to evaluate whether increase of R&D budget helped increase the companys market share

A.out of scope. new products have no bearing on company market share

B. out of scope. other companies' R&D budget allocation cannot determine if the given company's increased R&D allocation helped improve the market share

D. out of scope. we need to find if the increased R&D 
allocation was responsible for the improved market share

E. out of scope.

C-correct, as an "yes' answer to this question identifies an alternate cause for the increase in the company's market share=>improved R&D allocation not responsible. a "no" answer supports company's decision.

dabaobao · Answer

Official Solution (Credit: Manhattan Prep)

The company's management decided to further increase spending on research and development because the company experienced an increase in market share after the first increase in R & D. The management, however, assumed that the increase in market share resulted directly from the increase in R & D. We are asked which of the listed investigations would allow us to know whether that assumption was valid.

(A) The number of new products does not tell us whether the increase in market share resulted from the increase in R & D.

(B) The percentage of revenue that other companies spend on R & D does not tell us whether the company's increase in market share resulted from its own increase in R & D.

(C) CORRECT. If the company's competitors have dropped out of the market, perhaps the increase in Company X's market share was not the result of the increase in R & D but rather the result of a lack of competition.

(D) The maximum percentage that could be spent on R & D without affecting production does not tell us whether the increase in market share resulted from the increasein R & D.

(E) Knowing whether all of the company's new products have fared equally well will not tell us whether the increase in market share was the result of the increase in R & D.

gmexamtaker1 · Answer

Hello guys, 
A prompt question regarding this problem, if the question was a little bit different and it said that the company is planning to increase the budget of RD for the next year too, so the question stem would change to ".... to further increase the research and development budget  IS  warranted?

Then wouldn't answer choice D be correct? (I'm asking because I misinterpret what the question was asking thinking that the next increase will be in a future year not that it has already happened in the previous year)

VerbalBot · Answer

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Company X experienced a significant loss of market share over a number

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