Critical Reasoning

Company X experienced a significant loss of market share over a number of years. To strengthen its market position, the company decided two years ago to increase the percentage of total revenue devoted to research and development. The following year, the company's market share increased by 10 percent. In response, company management further increased the amount of money devoted to research and development.

Which of the following investigations is most likely to yield significant information that would help evaluate whether the company's decision to further increase the research and development budget was warranted?

A) Determining how many new products the company has created over the past year

B) Determining the percentage of revenue that other companies devote to research and development

C) Determining whether any of the company's competitors have withdrawn from the market in the past two years

D) Determining the maximum percentage of revenue that the company can devote to research and development without affecting the company's production budget

E) Determining whether all of the company's new products have fared equally well in the marketplace

OAC

GMATsid2016 wrote:Company X experienced a significant loss of market share over a number of years. To strengthen its market position, the company decided two years ago to increase the percentage of total revenue devoted to research and development. The following year, the company's market share increased by 10 percent. In response, company management further increased the amount of money devoted to research and development.

Which of the following investigations is most likely to yield significant information that would help evaluate whether the company's decision to further increase the research and development budget was warranted?

A) Determining how many new products the company has created over the past year

B) Determining the percentage of revenue that other companies devote to research and development

C) Determining whether any of the company's competitors have withdrawn from the market in the past two years

D) Determining the maximum percentage of revenue that the company can devote to research and development without affecting the company's production budget

E) Determining whether all of the company's new products have fared equally well in the marketplace

OAC

This is a classic causality argument. According to the passage, there was investment in R & D one year and a 10% increase in market share in the next. So,

R & D ---> increase market share

We want to know if there could have been something else that might have increased market share. Look at C. If competitors withdrew from the market, it's possible that it's not, in fact, the R & D that boosted market share for this company, but rather, the struggles of competitors. So this is useful information to know to determine if that R & D investment was warranted.

Getting this one is about looking for something to help in evaluating a connection, the connection between market position and percentage of revenue spent on research and development.

(A) This is tempting, because research and development are connected with the creation of new products. However this does not really help with evaluating the connection between research and development spending and market share. New products are not the same as market share.

(B) This does not help the company evaluate the connection between its own research and development spending and market share.

(C) This is interesting. The company saw market share growth after an increase in research in development spending. So these things seem to be connected. However, the change in market share could have resulted from a change in the marketplace rather than from the increase in research and development spending. So knowing whether the competitive landscape changed could be useful in evaluating the connection between research and development spending and market share.

(D) Having this information is of secondary importance. What is to be evaluated is whether increasing the budget is warranted, rather than whether it is feasible.

(E) This is way off track. I mean "equally well" is pretty much useless. So what if some fared better than others. Maybe they all did really well, and some did super really amazingly well. Maybe none of them fared very well, but some did ok. Whatever. What's being evaluated is whether research and development spending affected market share, and comparing the relative successes of the company's products tells us basically nothing that helps us to evaluate that.

The correct answer is C.