Reading Comprehension

OG'15 Passage-9


Manufacturers have to do more than build large
manufacturing plants to realize economies of scale.
It is true that as the capacity of a manufacturing
operation rises, costs per unit of output fall as plant
size approaches "minimum efficient scale," where the
cost per unit of output reaches a minimum.............






37. The passage suggests that in order for a
manufacturer in a capital-intensive industry to have a
decisive advantage over competitors making similar
products, the manufacturer must
(A) be the first in the industry to build production
facilities of theoretically optimal size
(B) make every effort to keep fixed and sunk costs
as low as possible
(C) be one of the first to operate its manufacturing
plants at minimum efficient scale
(D) produce goods of higher quality than those
produced by direct competitors
(E) stockpile raw materials at production sites in
order to ensure a steady flow of such materials


OG Sol: The passage addresses this
question by stating that advantage accrues to
those firms that are the first to exploit the full
potential of optimally sized, technologically
sophisticated plants. In this context, exploiting
the full potential of such plants means operating
them at minimum efficient scale.

Doubt: How does exploiting the full potential refer to min efficient scale?



38. The passage suggests that which of the following is
true of a manufacturer's fixed and sunk costs?
(A) The extent to which they are determined by
market conditions for the goods being
manufactured is frequently underestimated.
(B) If they are kept as low as possible, the
manufacturer is very likely to realize significant
profits.
(C) They are the primary factor that determines
whether a manufacturer will realize economies
of scale.
(D) They should be on a par with the fixed and sunk
costs of the manufacturer's competitors.
(E) They are not affected by fluctuations in a
manufacturing plant's throughput.

OG Sol: But the passage does not claim
that keeping aggregate fixed and sunk costs
very low is necessary in order to have the
most competitive production operation


Doubt: question didn't ask about most competitive production operation


40. The passage LEAST supports the inference that a
manufacturer's throughput could be adversely
affected by
(A) a mistake in judgment regarding the selection of
a wholesaler
(B) a breakdown in the factory's machinery
(C) a labor dispute on the factory floor
(D) an increase in the cost per unit of output
(E) a drop in the efficiency of the sales network



OG Sol: This requires understanding the information the
passage gives about throughput, then making
inferences about what can cause throughput to
drop. The passage defines throughput generally as
the flow of materials through a plant and goes on to
explain that it involves coordination of the
production process itself, as well as obtaining
materials from suppliers and marketing and
distributing the manufactured products.
Anything that damages this flow of materials
and products would be said to have an adverse
effect on throughput.



options B, C focuses on problems on the factory
floor mentioned in the passage
But the passage refer to floor problems for fixed and sunk costs and not for throughput.

I referred to below pints for my explanation:


The throughput needed to maintain the
optimal scale of production requires careful
coordination not only of the flow of goods through the
production process, but also of the flow of input from
suppliers and the flow of output to wholesalers and
final consumers. If throughput falls below a critical
point, unit costs rise sharply and profits disappear. A
manufacturer's fixed costs and "sunk costs" (original
capital investment in the physical plant) do not
decrease when production declines due to inadequate
supplies of raw materials, problems on the factory
floor, or inefficient sales networks

Can anyone help me out?