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Rate my Analysis of an Argument - 1st one!

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CappyAA Master | Next Rank: 500 Posts
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Rate my Analysis of an Argument - 1st one!

Tue Aug 19, 2008 10:06 am
The following appeared as part of an annual report sent to stockholders by Olympic Foods, a processor of frozen foods:

"Over time, the costs of processing go down because as organizations learn how to do things better, they become more efficient. In color film processing, for example, the cost of a 3-by-5-inch print fell from 50 cents for five-day service in 1970 to 20 cents for one-day service in 1984. The same principle applies to the processing of food. And since Olympic Foods will soon celebrate its 25th birthday, we can expect that our long experience will enable us to minimize costs and thus maximize profits."

The annual report sent to stockholders by Olympic Foods, while ambitious, is not logically sound. The stockholders fail to consider several factors in their reasoning that a company's longevity will determine processing costs. They also give a faulty example to back up their claim. The argument below will refute the stockholder's argument that the costs of processing will go down.

The stockholders use the processing cost of a 3-by-5 print as an example to show that the cost of processing frozen food will go down. What they fail to recognize is the differences between photography and frozen food. Simply because the processing cost of photography has decreased over the period of time between 1970 and 1984, it doesn't necessarily mean the same will apply to frozen food. This may have been a unique technological time for the photography industry. If new advances were made in the field of photography allowing for companies to process photographs faster and cheaper, this would explain the lower processing cost - not increased efficiency.

The stockholders also fail to consider the costs after 1984. If the costs of processing photographs were shown to rise from 1984 through 2008, this certainly would weaken the their argument. The 14-year period mentioned is less than the 25-year period Olympic Foods has been processing. According to the reasoning by the stockholders, Olympic Foods should have realized their improvements in efficiency already.

Finally, the stockholders also fail to recognize other organizations that have actually had processing costs go up. United and American Airlines have been in service for many years, flying to a number of destinations around the country and the world. Over the past few years, airline processing costs have risen dramatically, mainly due to the increased prices of fuel. This external factor, not related to the efficiency of processing, has affected processing costs for the airline. The same could be true for Olympic Foods. If the cost to power industrial strength freezers were to dramatically rise, the processing costs for Olympic Foods would rise significantly, through no fault of their efficiency.

These points above show that the stockholders have looked over a few points. If they were to address the above issues, they might have a better, more airtight argument. As it stands, their logic is faulty and their argument is weak.

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rajbeer11 Newbie | Next Rank: 10 Posts
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Posted:
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Wed Sep 19, 2012 7:04 am
Please rate my essay and provide feedback:

The argument that cost of processing goes down with time is flawed in several ways.
Firstly, the cost of processing is not only based on organizationâ€™s learning how to do things better and efficiently but several other factors like competition in the market and increasing cost of raw material.
Again an organization learning the right process is not a convincing logic itself. For an organization to be successful, the process being followed should be dynamic and should change according to the market and the latest technology rather than achieving a standard process over time.
The example of color film processing has been given to support the above point. However, if something worked for one organization does not mean that it would work in the same way for all other organizations also.
The fact that the organization is now 25 years old could rather have been used to highlight its stability, market capture and its ability to survive under varied conditions that have come up in this time period.
Apart from this, the organization could have provided information like improvements in profits, future growth plans or how it provides good products or services to capture the market.
The argument is only based on one aspect which itself is flawed, it is not very convincing for the stockholders.

Thanks!!

VP_Jim GMAT Instructor
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Wed Aug 20, 2008 7:39 pm
Great work. My only comment is you should be more specific regarding how to strengthen the argument - don't just say that they should "address the points above." Otherwise, excellent!

I'll give you a 5.5 - would be a 6 if you incorporated the comment above. Keep it up!

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