GMAT Essays (AWA)

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."

AWA Essay

The author's argument that Long experience will lead to minimization of costs and maximization of profits is flawed. In drawing this conclusion the author assumes that minimizing cost will definitely maximize profits. Also, in color film processing the author compares the price fall of a 5-day service to a 1-day service. Furthermore, comparing color film processing and food processing is a bit illogical since both have different types of processing techniques.

In the argument, the author bases the conclusion on the assumption that decrease in costs will lead to increase in profits. If, for example the sales go down then decrease in costs might lead to a no profit no loss scenario. Worst case situation, if the losses occurred by the decrease in sales are more than the profits occurred by decrease in costs, the organization might face tremendous losses. Since the author does not provide any information regarding the sales it is impossible to determine if the profits will increase.

Secondly,color film processing and food processing are two different organizations. The author implies that the same principle of color film processing is applicable to food processing. Since an example of how the same application works in food processing is not given the comparison is invalid.

Lastly,in color film processing the author compares the price fall of a 5-day service to a 1-day service. In 1970 the price of 5-day service was 50 cents which implies 10 cents a day. In 1984 the price of 1 day service was 20 cents which implies an increase in the cost by 10 cents, while the argument states it as a decrease in price. Generally we compare two similar entities to determine the difference between them.Thus the comparison made by the author is incorrect.

The argument could be strengthened if the author were to concede that the decrease in costs might lead to increase in profits provided the sales don't decrease as well. Also by comparing the price fall of similar entities and giving an example of how the food processing organization would apply the same principle of color film processing the argument could have been strengthened more. As it stands, however, the argument is flawed for the reasons indicated.