Think about it as a beautifully and intricately written text that judges your ability to connect the dots. "One name brand cereal manufacturer is about to reduce wholesale prices for its cereals by 20% because consumers have been switching from its cereals to cheaper store brands." → the name brand cereal does not sell as much as cereals from store brands. The reason is the price of the name brand cereal is, for example, $12, while the store brand cereals are at $10. The name brand, therefore, reduces the wholesale price in an attempt to attract price-conscious customers and increase sales.
"The success of this strategy relies on the assumption that supermarkets will pass on all of the savings by lowering the prices they charge consumers for the manufacturers' cereals. Although supermarkets usually do this, in this case it is likely that they won't do so because:"→ supermarkets don't want to reduce the price of the name brand cereals because it must hurt their profitability.
Before diving in, we need to bear in mind that:
1. It is common sense that people prefer more profit over less profit → supermarkets will want to keep the price high so that they have better profits.
2. Store brands are like the brands owned by the supermarkets so supermarkets must do something in favor of the store brands. The text mentioned store brand, so it must have something to do with the store brands. What I would do is:
1. Find the reason why the supermarkets don't want to reduce the price of the name brand cereal while selling to customers.
2. Pay more attention to the answers that have store brands.
A. Several other name-brand cereal manufacturers are about to reduce the wholesale prices of their cereals →
Incorrect. If these name brand manufacturers reduce the wholesale prices, supermarkets will be able to purchase these items at a lower price. But does this answer the question of why the supermarkets won't reduce the price of the name brand cereal stated in the text? Does this have anything to do with the name brand and the store brand mentioned in the text? No.
B. The average price per box of name-brand cereals has significantly increased over the past 10 years.→
Incorrect. It is the problem of the manufacturers, not the supermarkets.
C. Total annual sales of cereal—including both name-brand and store-brand cereals—have increased over the past 10 years. →
Incorrect. Both name brand and store-brand are mentioned. All of them go up in sales, and still a name brand cereal’s sales is not as good as the store brand cereals. We have nothing to corroborate the reason as to why the supermarkets don't want to reduce the price of the name brand cereal.
D. Supermarkets currently make far more profit on sales of store-brand cereals than on sales of name-brand cereals. [/b]
→ Correct. The answer mentioned both store brand cereals and name brand cereal here.The profit earned from store brand cereals is much more handsome than the profit earned from name-brand cereal, maybe because more people buy store-brand cereals.
So we have:
Option 1: selling store brand cereals with great profits and selling name brand cereal at a high price which secures better profit since the wholesale price was lower.
Option 2: selling store brand cereals with great profits and selling name brand cereal at a reduced price --> losing some price-conscious customers of store brand cereals to the name brand cereal. Taking into account the fact that supermarkets want to protect their own brands (store brands), they would want to attract as many customers for store brands as possible.
- Besides, with price-conscious customers switching to buy this name brand cereal, supermarkets will secure
less profit than the profit that would have been earned if they had kept the price high as in option 1.
So the supermarkets will choose option 1.
E. The current prices of manufacturers' cereals are comparable to the prices of name-brand cereals produced by other cereal manufacturers. Incorrect. This also does not explain why the supermarkets still want to keep the current price of the name brand cereal stated in the text.
25%
(medium)
22%
(02:11)
wrong 
Updated on: 01 Jan 2013, 09:45 
