The demand for large, family-sized vehicles will slump dramatically

Question

The demand for large, family-sized vehicles will slump dramatically over the next ten years. Steel plating is a component used in these vehicles, and to obtain maximum price reduction on it, major automobile companies order it five years in advance of delivery, but they are postponing orders now.

Which of the following must be evaluated to validate the decision made by the major automobile companies?

A. Whether the other components used in these vehicles have been ordered well in advance.

B. Whether the other components used in these vehicles are in short supply.

C. Whether the price of steel plating would rise significantly over the years.

D. Whether these companies cannot resell steel plating to other automobile companies at a bearable loss.

E. Whether the demand for small-sized vehicles will also slump dramatically over the next ten years.

Source:  Manhattan Review

Sajjad1994 · Accepted Answer

Official Explanation

Argument construction

In the next decade, the demand for a certain type of car will go down. Companies generally order steel plating 5 years in advance to get the maximum discount from suppliers. It follows that the companies would have ordered steel plating for this type of car 5 years in advance when these types of cars had consistent demand. Now, after the companies learnt that the demand for this car type will go down, they want to postpone the orders for steel plating.

Predict an Evaluator

The major automobile companies tread cautiously. They anticipate that if the demand for the large, family-sized vehicles slumps to such an extent that they have to stop making these types of vehicles, then the pre-ordered steel plating would go waste and become a liability for them. However, if the demand for these types of vehicles does not slump to the extent that they have to stop making these types of vehicles, they may then, at that point in time, order the required amount of steel plating, though they will not get the hefty discount they would have got with an order made 5-years in advance. This seems to be the most rational decision.

Before postponing the orders, the major automobile companies must evaluate that if they would need steel plating in future, its supply will remain consistent and also, that its price is not likely to rise significantly higher than the present rates.

Predictive evaluator 1:  Is the availability and the supply of steel plating likely to be consistent in the future?

Predictive evaluator 2:  Will the price of steel plating rise significantly in future?

Kvadlamani7 · Answer

Hi Bunuel,

I chose C, which appears to be the correct answer but I chose it by POE. Could you please explain choice C? And would this be a 700 level q?

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minganh · Answer

Automobiles companies postpone their steel orders to obtain maximum price reduction

A. Whether the other components used in these vehicles have been ordered well in advance -> irrelevant, well or not, these companies still can obtain max reduction

B. Whether the other components used in these vehicles are in short supply. -> the other components are irrelevant, question concerns about steel

C.  Whether the price of steel plating would rise significantly over the years. -> here it is, if the price rises significantly over the year, these companies cannot obtain maximum reduction

D. Whether these companies cannot resell steel plating to other automobile companies at a bearable loss. -> irrelevant, the companies's objective is to obtain maximum reduction, not to resell at a bearable loss.

E. Whether the demand for small-sized vehicles will also slump dramatically over the next ten years ->irrelevant, the demand for small-sized vehicles cannot use to judge the price of a family-sized vehicles's component.

So C. Hope it helps. Please help to point out my fault if you think my thought is flawed.

Thank so much!
-M.A

Thelegend2631 · Answer

You could try prethinking here, so why do they purchase in advance ? because of increasing costs, start finding on option on those lines.

The demand for large, family-sized vehicles will slump dramatically

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The demand for large, family-sized vehicles will slump dramatically

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