ardz24 wrote:In order to increase profits during a prolonged slowdown in sales, the largest manufacturers of automobiles in the United States have instituted record-setting price increases on all their models. The manufacturers believe that this strategy will succeed, even though it is inconsistent with the normal relationship between price and demand.

The manufacturers' plan to increase profits relies on which of the following assumptions?

A Automobile manufacturers will, of necessity, raise prices whenever they introduce a new model.
B The smaller automobile manufacturers will continue to take away a large percentage of business from the largest manufacturers.
C The increased profit made on cars sold will more than compensate for any decline in sales caused by the price increases.
D New safety restraints that will soon become mandatory for all new cars will not be very costly for manufacturers to install.
E Low financing and extended warranties will attract many price-conscious consumers.

Plan: The largest manufacturers of automobiles in the US have instituted record-setting price increases.
Conclusion: Profits will increase.

Apply the NEGATION test.
When the correct answer choice is negated, the conclusion will be invalidated.

C, negated:
The increased profit made on cars sold will NOT compensate for any decline in sales caused by the price increases.
This negation indicates that the extra profit earned on each car will not compensate for the decrease in the number of cars sold, invalidating the conclusion that profits will increase.
Since the negation of C invalidates the conclusion, C is an assumption: a statement that MUST BE TRUE for the conclusion to hold.

The correct answer is C.

B, negated:
The smaller automobile manufacturers will not continue to take away a large percentage of business from the largest manufacturers.
This negation indicates that the market will become less competitive, STRENGTHENING the conclusion that the largest manufacturers will be able to increase profits.
Since the correct negation must INVALIDATE the conclusion, eliminate B.

D, negated:
New safety restraints will be very costly for manufacturers to install.
Here, it is entirely possible that the manufacturers' RECORD-SETTING price increases will be able to compensate for the cost of installing new safety restraints.
Since the negation of D does not invalidate the conclusion that manufactures will be able to increase profits, eliminate D.