The author's argument that the long experience that Olympic Foods has in processing frozen foods will allow it to decrease costs and thus increased profits is flawed. Though the arguments seems valid at first glance, it fails to explain how decreasing costs will maximize profits and, what is more important, why does the author assume that the principle of an organization's costs decreasing with experience will apply in the specific case of Olympic Foods.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."
Discuss how well reasoned . . . etc.
First, the author assumes that if Olympic Foods will manage to decrease costs it will automatically maximize its profits. However, this statement is unsupported since profit is determined by two variables - cost and sale price. For example, if the cost decreases by 10% and the selling price stays constant, then company's profits will increase. Conversely, if the cost decreases by 10%, but the company is forced to drop its selling price by 50%, then the profits will decrease dramatically despite the drop in cost. Also, the author is using a very strong language, by claiming that the stated principle should "maximize" the profits, without stating whether the cost decrease is the best way to increase profits.
Secondly, the author puts a lot of emphasis on the fact that the stated principle must apply to Olympic Foods, when, in fact, it's not clear how are these companies similar. Moreover, the author fails to explain if the "things" that are learned in food processing industry play an essential role in decreasing the production cost or time. For example, in color film processing the cost might be determined by the speed at which a professional works. If in time the worked learns to be faster and fulfill more commands this might decrease the price of photo processing. However, this might not necessarily work in food processing where the speed of processing doesn't play an essential role.
In conclusion, the argument as stated by the author is not particularly strong and fails to convey why Olympic Foods should benefit from increased costs this coming year. The author should strengthen the conclusion by elucidating the exact reason behind the photo processing cost decrease and explaining why this would apply in food processing. Also, the author should provide evidence that decreasing cost is the best way to increase profits.
