V02-23

Official Solution:


A small orchard specializing in citrus fruits has been receiving fewer orders for oranges in the off season. Orchard owners expect demand to pick up in the coming weeks as harvest begins, but they are concerned about a neighboring orchard whose stock is nearly three times their own stock. The neighboring orchard has announced plans to sell cases of oranges for 20% less than regular price in order to jump-start the season by attracting new business. The small orchard plans to compete with the bigger orchard by reducing the rates by 20%.

Which of the following, if true, points to the most serious flaw of the small orchard's plan to compete with the large orchard by matching the prices of the competing orchard?


A. The small orchard has a dozen customers under contract to purchase the first oranges of the season and may anger them by not extending the discount to them.
B. The small orchard has enough time to advertise its oranges at lower prices.
C. The small orchard will reduce the number of oranges in each case to minimize losses incurred by matching prices.
D. The large orchard has a larger inventory and is more able to take losses on initially discounted oranges.
E. The large orchard will target a bigger market than the small orchard.


Situation: A small orchard desires to compete with a larger neighboring orchard.

Reasoning: Which point reveals the most serious flaw in the small orchard's plan? It can be determined from the passage that the large orchard has three times the stock of the small orchard, and that they are looking to attract new business. It can also be inferred from the passage that the owners of the large orchard are confident that they are able to sell oranges at a discount and still remain solvent.

A. The concern of the orchards is in attracting new business, not satisfying existing customers. Additionally, customers under contract have likely already agreed to a non-discount price.

B. This item strengthens the small orchard's plan.

C. This approach is not a flaw in the plan, but a possible, potentially unethical, solution.

D. The large orchard's greater inventory will give them a flexibility that will outlast the small orchard. The small orchard could run out of stock before the large orchard has sold even a third of its oranges.

E. Since the large orchard has bigger stock, it will venture into bigger market. This is an inference from the passage and does not indicate any flaw in the small orchard's plan.


Answer: D