Two years ago, the cost of the raw material used in a

OFFICIAL EXPLANATION

The head of engineering has concluded that the one-time doubling of costs for the raw material caused the steady decline, over two years, of profit margins. The engineer's conclusion rests on the assumption that there is a connection between the one-time raw material price increase and the two-year steady decline in profit margins. Alternatively, something else could have caused either a steady two-year decline in revenues or a steady two-year increase in costs; if so, this event is more likely to be the cause of a steady decline in profit margins over the same two-year period. As a result, this would weaken the engineer's conclusion that finding a new source for the raw material will improve profit margins.

(A) CORRECT. New competitors have caused a steady two-year decline in revenues. This weakens the engineer's contention that the one-time doubling of costs for the raw material is the cause of the steady two-year decline in profit margins.

(B) The fact that the region's mines are producing less than they did before the earthquake does not indicate anything about the cost of the raw material; it would be necessary to show that cost is not reduced in order to weaken the engineer's conclusion.

(C) The amount of raw material produced by other regions does not indicate anything about the cost of the raw material; it would be necessary to show that cost is not reduced in order to weaken the engineer's conclusion.

(D) The use of a different raw material does not indicate anything about the cost of that raw material; it would be necessary to show that cost is not reduced in order to weaken the engineer's conclusion.

(E) Although mining the raw material may become more cost-effective for the mine (that is, cheaper), this does not tell us what will happen to the price they charge for the material when selling to the company producing the product in question. It would be necessary to show that the company’s cost is not reduced in order to weaken the engineer's conclusion.

Wow, not bad, I see 3 options that might undermine the decision...

(E) is one of these options, however, this option talks about FUTURE solutions, it does not solve the immediate problem of steadily decreasing profits (which MIGHT have been result from a lack of adequate raw materials).
(C) This a very 'weak' weaken, although other sources do not produce as much material, it could still help alleviate the shortage.
(B) This sounds like a strengthen.
(D) is another very attractive answer for me, but I have my doubts (can't quite articulate them); I think while there is nothing logically wrong with this as a weaken, A is a much stronger option.

(A) I would go with this answer over choice D, because it definitively states that increased competition is a major source of price decreases. This is unambiguously challenges the assumption that material shortages are the cause of the profit decline. This introduces an alternative cause, which would not be fixed by the proposed solution of finding new resources.

"....Aiming to improve profit margins, the company's head of engineering has decided that he must find a new source for the raw material."
We need to find the option which states that even if a new source of raw material is found, the company would still not be able to improve its profit margin.

(A) New competitors have entered the market every six months for the past two years, resulting in price wars that have progressively driven down revenues across the market. --------best
(B) Although the earthquake occurred two years ago, the region's mines have still not recovered to pre-earthquake production capacity.-------but the engineers are looking for new sources, not concerned with the same regions mines.
(C) There are several other regions in the world where the raw material is mined, but those regions do not produce as much of the raw material as the current source region.------also a good option, supporting the fact that any other source chosen would have even less supply of the raw material.
(D) The company could use a completely different raw material to make its product.-----supports the engineer's decision.
(E) Recent advances in mining technology will make mining the raw material much more efficient and cost-effective in the future.-------- Irrelevant.

Well, I chose "A" for some different reason.

Company's head of engineering was taking a decision not to decrease the cost of raw material rather to increase profit margins. So in my view, if the target is profit margin then choice "A" is relevant, if he had his eyes on raw material then chocie "D" was the right option.

My way of thinking can be wrong, correct me if that's the case

I too would go with A, bcoz if the prices are low due to competition, even if the costs are decreased, the profit margin will not go up significantly. Progressive lowering of market prices will keep driving the profits lower.


D sounds good too, but they have not mentioned anything else abt how cheap/costly the new raw material would be compared to the existing one, so it should not affect the argument much.

Dear All,

Thanks for an engaging discussion. The offical explanation is as follows:

The head of engineering has concluded that the one-time doubling of costs for the raw material caused the steady decline, over two years, of profit margins. The engineer's conclusion rests on the assumption that there is a connection between the one-time raw material price increase and the two-year steady decline in profit margins. Alternatively, something else could have caused either a steady two-year decline in revenues or a steady two-year increase in costs; if so, this event is more likely to be the cause of a steady decline in profit margins over the same two-year period. As a result, this would weaken the engineer's conclusion that finding a new source for the raw material will improve profit margins.

(A) CORRECT. New competitors have caused a steady two-year decline in revenues. This weakens the engineer's contention that the one-time doubling of costs for the raw material is the cause of the steady two-year decline in profit margins.

(B) The fact that the region's mines are producing less than they did before the earthquake does not indicate anything about the cost of the raw material; it would be necessary to show that cost is not reduced in order to weaken the engineer's conclusion.

(C) The amount of raw material produced by other regions does not indicate anything about the cost of the raw material; it would be necessary to show that cost is not reduced in order to weaken the engineer's conclusion.

(D) The use of a different raw material does not indicate anything about the cost of that raw material; it would be necessary to show that cost is not reduced in order to weaken the engineer's conclusion.

(E) Although mining the raw material may become more cost-effective for the mine (that is, cheaper), this does not tell us what will happen to the price they charge for the material when selling to the company producing the product in question. It would be necessary to show that the company’s cost is not reduced in order to weaken the engineer's conclusion.

I've read and re-read this problem a dozen times now, and I can't buy into (A).

In particular, I consider it incorrect for the OA to indicate that the engineer believes that the 2 year steady decrease is due to the one time doubling of raw material costs. This is never stated in the original question.

The original question makes three statements:
1) Raw materials increased due to an earthquake
2) Profit margins have been decreasing steadily for the past two years
3) Engineer is looking for cheaper raw materials to increase margins.

It doesn't matter what logic the engineer used to arrive at (3), it's still a legitimate contention. If Profit = Revenue - Costs, and raw materials are part of Costs, then with all else being equal, reducing the cost of raw materials will increase the profits.

So in order to weaken the validity of the engineers argument, you have to prove that lower cost raw materials will not increase the profit margin.

For example, if one of the answer choices was:
"Using cheaper raw materials will require significant investment in additional refining procedures"
That would cast doubt on the validity of the engineer's decision.

I'd even go one step further, and say that even if the statement had 4 statements instead of 3, and those statements looked like:
1) Raw materials increased due to an earthquake
2) Profit margins have been decreasing steadily for the past two years
2.5) Engineer believes decreasing margins are caused by christmas elves stealing money to fund the toy factory.
3) Engineer is looking for cheaper raw materials to increase margins.

I'd still say that 3 is a perfectly reasonable decision, and that in order to cast doubt on (3), you'd have to show that cheaper raw materials might actually INCREASE costs.

Two years ago, the cost of the raw material used in a particular product doubled after an earthquake disrupted production in the region where the material is mined. Since that time, the company that makes the product has seen its profit margins decline steadily. Aiming to improve profit margins, the company's head of engineering has decided that he must find a new source for the raw material.

Type - Weaken

The head of engineering has concluded that the one-time doubling of costs for the raw material caused the steady decline, over two years, of profit margins. The engineer's conclusion rests on the assumption that there is a connection between the one-time raw material price increase and the two-year steady decline in profit margins. Alternatively, something else could have caused either a steady two-year decline in revenues or a steady two-year increase in costs; if so, this event is more likely to be the cause of a steady decline in profit margins over the same two-year period. As a result, this would weaken the engineer's conclusion that finding a new source for the raw material will improve profit
margins.

(A) New competitors have entered the market every six months for the past two years, resulting in price wars that have progressively driven down revenues across the market. - CORRECT. New competitors have caused a steady two-year decline in revenues. This weakens the engineer's contention that the one-time doubling of costs for the raw material is the cause of the steady two-year decline in profit margins.
(B) Although the earthquake occurred two years ago, the region's mines have still not recovered to pre-earthquake production capacity. - The fact that the region's mines are producing less than they did before the earthquake does not indicate anything about the cost of the raw material; it would be necessary to show that cost is not reduced in order to weaken the engineer's conclusion.
(C) There are several other regions in the world where the raw material is mined, but those regions do not produce as much of the raw material as the current source region. - The amount of raw material produced by other regions does not indicate anything about the cost of the raw material; it would be necessary to show that cost is not reduced in order to weaken the engineer's conclusion.
(D) The company could use a completely different raw material to make its product. - The use of a different raw material does not indicate anything about the cost of that raw material; it would be necessary to show that cost is not reduced in order to weaken the engineer's conclusion.
(E) Recent advances in mining technology will make mining the raw material much more efficient and cost-effective in the future. - Although mining the raw material may become more cost-effective for the mine (that is, cheaper), this does not tell us what will happen to the price they charge for the material when selling to the company producing the product in question. It would be necessary to show that the company’s cost is not reduced in order to weaken the engineer's conclusion.

Answer A

Why "C" is not the correct one? It's saying that the supply of the raw material is even lower than the current source of supply, means even higher price than the current supplier's price.?.?.?

Hi Lakshya

Option (C) does not make it clear whether the amount of raw material produced in other regions is lower than the current source of supply when all the other regions or taken together or individually. If each of the other regions individually produces lower quantity of the raw material, then it is still possible that, taken together, they could exceed the quantity produced by the earthquake affected region. In this scenario, other regions could act as an alternate source of supply without impacting the price adversely.

Even if the other regions taken together produce lower quantity of the material, we do not have enough information about the total demand for the raw material from the market. If the demand is materially lower than the total production (even the lower level) in these alternate regions, then they could potentially act as alternate sources.

Given these doubts, it is better to look for a clear alternate reason for the company's dwindling margins. Option (A) provides one such, clearly highlighting the pressure on revenues due to competition faced by the company. Since profit margins can be impacted by either revenues or costs, this makes option (A) a much better option.

Hope this helps.

wont c be considered because it weakens the idea of find a resource in some other place as the statement suggests?

(A) New competitors have entered the market every six months for the past two years, resulting in price wars that have progressively driven down revenues across the market.
Since the revenue margin has dried up therefore ecen if the company finds alternate source of enegy it will not be able to competitevly price ot'sproducts

(B) Although the earthquake occurred two years ago, the region's mines have still not recovered to pre-earthquake production capacity.
This however leads strength to the fact that new minig site raw materials has to be found out to increase profit margins

(C) There are several other regions in the world where the raw material is mined, but those regions do not produce as much of the raw material as the current source region.
But these regions can be combined to attain the same amount of raw material produced by the earth quake hit site , therefore it definitely lends support

(D) The company could use a completely different raw material to make its product.
This definitely having no impact on the passage provided since the argument is seeking something else to establish

(E) Recent advances in mining technology will make mining the raw material much more efficient and cost-effective in the future.
This further adds strengthen to the fact that new mining site will have substantial might in driving up the profit margin
Therefore IMO A

Is there no chance that price will decrease in future because of E? If there is a chance, it is weakening, right?

Hi KarishmaB,

Cause -> Two years ago, An earthquake disrupted production in the region where the material is mined.

Effect -> The cost of the raw material used in a particular product doubled and since that time, the company that makes the product has seen its profit margins decline steadily.

Plan -> Aiming to improve profit margins, the company's head of engineering has decided that he must find a new source for the raw material.

We need to cast doubt on the validity of the head of engineering's decision.

(A) New competitors have entered the market every six months for the past two years, resulting in price wars that have progressively driven down revenues across the market.

Now the plan of the head engineer is to look for a new source for the raw material.

Weakening this, A says that some X reason has caused this decline.

Now, my doubt is, what is the way in which (A) is weakening?

1. Is it because introducing a new source of the profit decline shows that the head engineer's plan in the first place is of no use?

2. Or is it weakening by saying that the plan to find a new source of raw material would ultimately fail as since two years the decline has been due to the price wars?

Thanks in advance and hoping for your valuable response.

I think this is a flawed question. The question talks about profit margins, which would ideally be in percentages of revenue. Even if revenue decreases because of statement A being true, the profit margin may or may not change.

Note the wording of the argument:

2 yrs ago, the cost of the raw material doubled due to an earthquake.
Since then, the company that makes the product has seen its profit margins decline steadily. (This is not the effect of the raw material cost doubling. That happened 2 years ago at one instant. It is not happening steadily for the past 2 years)

Plan: Look for another source of raw material.
Aim: Improve profit margins

What would cast doubt on the validity of the plan? Whatever impact the earthquake had, happened 2 years ago at that point in time and that is over. The steady reduction in profit margin cannot be because of that.

Will a new source of raw material help?
May be, if the reason for declining margins is continuous additional cost borne by the company because the supply of raw material is not steady because the mine is still not in order or because the supply is short etc.
But it will not help if the cause of declining margins is something else.

(A) New competitors have entered the market every six months for the past two years, resulting in price wars that have progressively driven down revenues across the market.

This is the cause of declining margins. Getting a new source of raw material may not help because sourcing of raw material may not be the problem at all.
I would have still thought about it had the plan been to look for a 'cheaper' source of raw material since that would have impacted profit margins. But since that is not mentioned in the plan, just finding another source may not arrest the declining profit margins at all.

Answer (A)