GMAT Essays (AWA)

"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 1970to 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 andthus maximize profits."

Discuss how well reasoned you find this argument. In your discussion be sure to analyze the line of reasoning and the use of evidence in the argument. For example, you may need to consider what questionable assumptions underlie the thinking and what alternative explanations or counterexamples might weaken the conclusion. You can also discuss what sort of evidence would strengthen or refute the argument, what changes in the argument would make it more logically sound, and what, if anything, would help you better evaluate its conclusion.

The argument starts by stating a general economic theory and further attempts to strengthen the same using the example of color film processing companies and extrapolate the principle to the operations of Olympic Foods.

A major assumption made by the speaker while stating the theory is that lower cost is a key component in defining efficiency of a company. Since the speaker also talks about moving up the learning curve over time, it is assumed that implementing changes in technology as well as improving labor productivity are an inherent part of the learning curve. However, the speaker does not include any information about what time span the theory holds true for. This can be a critical factor, particularly in industries where new technology is introduced at various intervals.
However, the example of the color film processing industry overlooks some factors. It is evident that as film processing technology improved from 1970 to 1984, the service time reduced from 5 days to 1 day, and this by itself strengthens the argument that companies become efficient as they learn to do things better. However, the argument fails to recognize that the reduction in the time and cost of a particular product line alone does not automatically imply that the business became more efficient. A key flaw in this example is that it ignores the new technology in films that must have sprung up between 1970 and 1984. With the entry of each new film technology, the Company would have had to incur time and cost to process the same - whether it meant buying new processing equipment or training employees in new methods. As for the processing of a 3 by 5 print, the Company would have had to reduce its price for the same as its cost came down. Hence, the assumption fails to consider the fact that the color film processing company may not have improved its profits from 1970 to 1984 via the 3 by 5 print alone.

The argument further talks about Olympic Foods. The assumption made here is that since Olympic is a food processing company and the aforementioned theory holds for processing companies, it will hold true for Olympic. The speakers' statement implies that the 25 years' experience alone will allow Olympic to minimize costs and hence, maximize profits. The speaker does not provide us with any evidence about the past track record of Olympic, in terms of profitability or how nimble the organization has been in adapting to changing business dynamics and hence, moving up the learning curve.

Given all of the above factors, the argument is not well-rounded and does not reach its conclusion on definite grounds.