Two years ago, the cost of the raw material used in a particular product doubled after an earthquake disrupted production in the region where the material is mined. Since that time, the company that makes the product has seen its profit margins decline steadily. Aiming to improve profit margins, the company's head of engineering has decided that he must find a new source for the raw material.
Which of the following, if true, would cast the most doubt on the validity of the head of engineering's decision?
A- New competitors have entered the market every six months for the past two years, resulting in price wars that have progressively driven down revenues across the market.
B- Although the earthquake occurred two years ago, the region's mines have still not recovered to pre-earthquake production capacity.
C- There are several other regions in the world where the raw material is mined, but those regions do not produce as much of the raw material as the current source region.
D- The company could use a completely different raw material to make its product.
E- Recent advances in mining technology will make mining the raw material much more efficient and cost-effective in the future.
Received a PM asking me to respond.
T-2 years: cost of raw material from a certain region doubles (at this point in time)
since then (past 2 years): company that uses this raw material has seen profit margins decline
steadily
head of engineering: wants to find new source for raw material
overall goal:
improve profit margins
Our task: weaken the head of engineering's conclusion, which is: new source for raw material --> improved profit margins.
What are some assumptions here?
(1) The declining profit margins were due to the doubled cost of the raw material. (This already seems a bit suspect. The price doubled at one point in time, two years ago. But the margins have been declining steadily. That's weird - without any additional info to explain why the effect would happen gradually over time...)
(2) A new source will cost less than the old source (because we want to
improve current margins).
The correct answer on a weaken question only has to open up the possibility that the conclusion is not valid. It does not have to completely destroy the conclusion. How could we do that based upon the assumptions above?
(1) if there's some other reason for the declining profit margins, then it's less likely that changing sources for the raw material will improve profit margins, because perhaps that is not the cause of the declining margins in the first place!
(2) if a new source will not cost less than the old source, then it can't possibly help improve margins.
A) provides an alternative reason for the declining margins. Looks good.
B) this does not directly address the given conclusion - and, if anything, it supports the engineer's plan
C) this is tempting, but the amount that is produced is irrelevant for the particular conclusion we're trying to weaken, because we have no information as to how much of the material the company needs; the conclusion does not hinge on this. The conclusion does hinge on how much the material costs. If we're talking about a new source, then the engineer's assumption is that this new source will cost less than the old source. So if we're trying to WEAKEN the engineer's claim, then we would have to show that the new source will NOT cost less than the old source. Does that clear up any confusion on the wording of the explanation?
D) nice for the company, but irrelevant for the given conclusion
E) if this is true, then it becomes more cost-effective for
everyone who is mining the stuff, including the original source. So why do they need to change sources? Why can't they just stick with the original company and have their costs go down that way? Oh, wait, maybe the costs won't go down at all - maybe the source company won't lower its costs to its customers? Well, that could be true of any new source company too. Basically, the "improve margins" goal hinges on the engineer's idea that, in order to achieve better margins, we have to switch source companies. This choice does not make any distinction between what those source companies will charge (nor does it provide an alternate explanation for why profit margins have been going down, as choice A does). So it doesn't weaken either of our assumptions.
