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

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Manager
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Two years ago, the cost of the raw material used in a [#permalink]

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27 Jun 2009, 10:31
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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.

Which of the following, if true, would cast the most 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.

(B) Although the earthquake occurred two years ago, the region's mines have still not recovered to pre-earthquake production capacity.

(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.

(D) The company could use a completely different raw material to make its product.

(E) Recent advances in mining technology will make mining the raw material much more efficient and cost-effective in the future.
[Reveal] Spoiler: OA

Last edited by hazelnut on 28 Oct 2017, 06:36, edited 3 times in total.
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Re: Two years ago, the cost of the raw material used in a [#permalink]

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27 Jun 2009, 10:57
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skim wrote:
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.
Which of the following, if true, would cast the most 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.
(B) Although the earthquake occurred two years ago, the region's mines have still not recovered to pre-earthquake production capacity.
(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.
(D) The company could use a completely different raw material to make its product.
(E) Recent advances in mining technology will make mining the raw material much more efficient and cost-effective in the future.

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.
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Re: Two years ago, the cost of the raw material used in a [#permalink]

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27 Jun 2009, 10:58
"....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.
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Re: Two years ago, the cost of the raw material used in a [#permalink]

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27 Jun 2009, 11:22
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skim wrote:
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.
Which of the following, if true, would cast the most 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.
(B) Although the earthquake occurred two years ago, the region's mines have still not recovered to pre-earthquake production capacity.
(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.
(D) The company could use a completely different raw material to make its product.
(E) Recent advances in mining technology will make mining the raw material much more efficient and cost-effective in the future.

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
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Re: Two years ago, the cost of the raw material used in a [#permalink]

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27 Jun 2009, 12:02
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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.
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Re: Two years ago, the cost of the raw material used in a [#permalink]

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29 Jun 2009, 07:32
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.
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Re: Two years ago, the cost of the raw material used in a [#permalink]

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19 Mar 2011, 11:03
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skim wrote:
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.

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.
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Re: Two years ago, the cost of the raw material used in a [#permalink]

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19 Mar 2011, 22:07
skim wrote:
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.

Which of the following, if true, would cast the most 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.

(B) Although the earthquake occurred two years ago, the region's mines have still not recovered to pre-earthquake production capacity.

(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.

(D) The company could use a completely different raw material to make its product.

(E) Recent advances in mining technology will make mining the raw material much more efficient and cost-effective in the future.

A is best here.It gives the alternative explanation that argument fails to consider, thus weakens an argument put forth.
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Re: Two years ago, the cost of the raw material used in a [#permalink]

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30 Apr 2016, 10:38
The stimulus considers that only the cost of the raw material as the cause of declining profit, and exploring a new source for the raw material will result in improving the profit margins.

(A) States that price wars as a cause of decrease in revenues, so exploring additional sources of cheap raw materials may not work to increase profits.

(B) The company can procure the raw materials from a region outside the present location.

(C) Quantity of raw materials from a single source is not important, they may procure raw materials from various sources and solve this problem.

(D) We cannot claim that the strategy of changing the raw materials can work or not. We have no idea about the price of substitute raw material nor do we have sufficient information to claim that the goods produced by substitute raw materials.

(E) Mining can become cost effective in future but what about now, the advancement of technology can come up in fututre and that may take say 50 - 100 years should the company wait for that time ?

This correct answer is option (A)

PS : Correct answer was updated , after checking various forums for this particular GMAT prep websites and discussions.
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Re: Two years ago, the cost of the raw material used in a [#permalink]

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03 Feb 2017, 01:01
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.

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Re: Two years ago, the cost of the raw material used in a [#permalink]

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09 Mar 2017, 13:44
am i missing something?? revenues is NOT equal to profit margin. profit margin is a ratio, and revenue is a figure. How can A be correct?
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Re: Two years ago, the cost of the raw material used in a [#permalink]

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09 Mar 2017, 13:47
OreoShake wrote:
am i missing something?? revenues is NOT equal to profit margin. profit margin is a ratio, and revenue is a figure. How can A be correct?

your profit margin could still be HIGH even with falling revenues.
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Re: Two years ago, the cost of the raw material used in a [#permalink]

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27 Dec 2017, 17:36
this question and the statement in A are a common and important pattern in gmat. Many questions have such pattern.
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Two years ago, the cost of the raw material used in a [#permalink]

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27 Dec 2017, 23:47
OreoShake wrote:
am i missing something?? revenues is NOT equal to profit margin. profit margin is a ratio, and revenue is a figure. How can A be correct?
your profit margin could still be HIGH even with falling revenues.

For profit margin to be HIGH even with falling revenues, the cost price has to keep decreasing. The goal, however, here is neither to distinguish between the revenues and profit margin nor to assume such scenario as mentioned by you.
The question is pretty straight forward.

Premise structure: The company blames the increased cost price(CP) for the falling profit. So, it plans to decrease CP (by looking for alternative source of raw material)
Weaken: Show that the decline in profits is due to not increased CP but some other factor.
A presents 'market competition' as the other factor of declining profits.
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