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Wholesale cereal prices

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Wholesale cereal prices

by BlueDragon2010 » Wed Jan 15, 2014 7:57 pm
Which of the following most logically completes the passage below?

One name-brand cereal manufacturer is about to reduce wholesale prices for its cereals by 20 percent because consumers have been switching from its cereals to cheaper store brands. The success of this strategy relies on the assumption that supermarkets will pass on all of the savings by lowering the prices they charge consumers for the manufacturer's cereals. Although supermarkets usually pass on such savings, in this case it is likely that supermarkets will not do so because _______.

(A) several other name-brand cereal manufacturers are about to reduce the wholesale prices of their cereals

(B) the average price per box of name-brand cereals has increased significantly in the last 10 years

(C) total annual sales of cereal - including both name-brand and store-brand cereals - have increased over the past 10 years

(D) supermarkets currently make far more profit on sales of store-brand cereals than on sales of name-brand cereals

(E) the current prices of the manufacturer's cereals are comparable to the prices of name-brand cereals produced by other cereal manufacturers
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by Patrick_GMATFix » Wed Jan 15, 2014 8:10 pm
The solution below is taken from the GMATFix App.

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by VivianKerr » Thu Jan 16, 2014 9:25 pm
So remember that when you approach a CR question, you have to REALLY break down the passage and THOROUGHLY understand the argument before you can even deal with the answer choices. Know what type of question it is, understand the passage itself, pre-phrase an answer, THEN use strong process of elimination to narrow them down. When you get to the final two, ask: which one of these is most effectively doing the JOB of the question-stem (i.e. weakening, strengthening, etc.)

So now that we've talked strategy, here's how I'd approach this l'il guy:

Question-type: Complete the Passage

That tells us: We need to know what the blank represents.

Passage breakdown: C going to reduce wholesale price 20% b/c consumer switch.

Our interpretation: They think this will be effective, but are most of their sales really wholesale? And even doing this, they could still lose $$.

Passage breakdown: C assumes supermarkets pass on savings.

Our interpretation: Okay, assuming supermarkets are buying wholesale, if they're only paying 80%, then they could theoretically charge 20% less, and consumers would be happy.

Passage breakdown: Supermarkets usually do this, this time they won't.

Prediction: Something that explains WHY the supermarkets won't "pass on" savings. Maybe they are greedy, or have another incentive.

Answer choice analysis:

A) other C's reducing $$ -- then wouldn't the markets reduce ALL prices, perhaps?
B) avg price keeps going up -- still doesn't explain why markets wouldn't adjust down
C) total sales up -- maybe slight greed incentive?
D) if they DID lower the price, it could hurt their profits - KEEP
E) C's price same as others -- still doesn't explain why they wouldn't lower for 1 brand

The correct answer is (D). Only (C) and (D) were possibilities here, and (D) went so much further to explain WHY they wouldn't lower their price by suggesting a negative consequence for the supermarkets.
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by [email protected] » Sat Jan 18, 2014 4:52 pm
Hi BlueDragon2010,

This CR question is an example of a "fill in the blank" Inference question. The solution will be the answer that logically completes the last sentence (and fits with the logic of the prompt).

The Logic:
-A name brand cereal manufacturer is going to reduce its cereals' prices by 20% (to try to win back customers who are buying cheaper cereals).
-Supermarkets usually pass on the savings to customers in the form of lower prices for the customer.
-In THIS case, the supermarkets will likely NOT pass on the savings BECAUSE.....

The word "because" is an evidence keyword - it means that whatever follows the word "because" will explain WHY the supermarkets won't lower the price. We'll be looking for an answer that gives us a logical reason for why the supermarket WON'T lower those cereals' prices.

Only answer D provides a reason for WHY the supermarket wouldn't lower the prices.

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