Reading Comprehension

Question #3 (incorrect)

Mergers and acquisitions in the U.S. food industry have provoked controversy for many years. Critics are concerned that mergers, by reducing the numbers of firms and increasing industry concentration, make it easier for firms to increase output prices and lower wages and input prices. Others argue that mergers and acquisitions (M&As) increase efficiencies and boost productivity by allowing companies to lower costs and provide consumers with goods at lower prices.

Until 1977, consolidation was not much of an issue for most food industries. At that time, the average four-firm concentration ratios (the percentage of the industry that is controlled by the top four firms) for eight food industries-meatpacking, meat processing, poultry slaughter and processing, cheese making, fluid milk processing, flour milling, feed processing, and oilseed crushing (soybean, cottonseed, and corn)-were about 31 percent. A wave of mergers and acquisitions led to a jump in average concentration to about 44 percent by 1992. Were these M&As efficient, and did acquired companies increase their productivity after being acquired?

Labor productivity, or output per worker, is one measure of production efficiency. Using U.S. Census Bureau plant-level data to examine processing plants in the eight food industries, researchers found that the processing plants were highly productive before being acquired and they significantly improved their labor productivity afterward. The five major food industries-meat processing, dairy (which includes both milk and cheese) and grain processing (which includes flour milling and feed processing)-doubled their output per worker, and two other industries realized at least 50-percent increases in output per worker over 1972-92. Only one of the eight industries, poultry slaughter and processing, failed to increase output per worker, and it experienced a vast increase in the processing of value-added products as plants switched from producing whole birds to producing poultry parts. The analysis suggests that mergers and acquisitions contributed to the general improvement in labor productivity.

Which of the following is true, according to the passage?


(A) Mergers and acquisitions in the food industry were more common before the year 1977 than they were after the year 1977.

(B) Seven food industries in the United States increased their output per worker between the year 1972 and the year 1992.

(C) The top four firms in the food industry control a larger concentration of the market now than they did in 1992.

(D) The poultry slaughter and processing industry was the only major food industry that did not see an increase in productivity after 1977.

(E) Mergers and acquisitions can be expected to increase average productivity per worker, regardless of the industry in which the workers are employed.

B should be correct.

This follows clearly from paragraph 3, which states that out of 8, 7 food industries saw an increase in labor productivity.

A is contrary to what is stated in paragraph 1.
C - No information on current status of the industry is provided
D - Poultry slaughter and processing industry is not a major food industry (as seen in paragraph 3.)
E - Generalization of M & A cannot be done on the basis of the provided information.