The following appeared as part of the business plan of an investment and financial consulting firm:
"Studies suggest that an average coffee drinker's consumption of coffee increases with age, from age 10 through age 60. Even after age 60, coffee consumption remains high. The average cola drinker's consumption of cola, however, declines with increasing age. Both of these trends have remained stable for the past 40 years. Given that the number of older adults will significantly increase as the population ages over the next 20 years, it follows that the demand for coffee will increase and the demand for cola will decrease during this period. We should, therefore, consider transferring our investments from Cola Loca to Early Bird Coffee."
YOUR RESPONSE:
The argument states that the firm should consider transferring their investments from the Cola products to Cofee products. This argument is based on the premise that average Cola consumption declines with increasing age of adults and Coffee consumption increases simultaneously. However, the argument is flawed as it is based on certain speculative assumptions.
The most important point that the firm overlooks is that it takes into consideration only the cosumption of the products by a certain group of people, and their behaviour towards the products with increasing age. However, the firm fails to take into account the consumption by the younger people and which may come into picture after aging of the group in consideration. In case, the population increases a constant rate, the consumption of both the Cola and Coffee is likely to remain constant as a whole.
Another assumption made by the firm is that the increase in pecentage of the older people will be higher than that of the other age group. This is a weak assumption, as other age group might actually be higher than the increase in older age group or atleast variable.
The firm also assumes that the price of Coffee and Cola products will have no effect on the sales or change in demand of the products. After such a long span of 40 years, the price hike might deter the consumers to change their consumptions upto a certain extent, as the older people might compare the prices to the older prices they used to pay in their younger age.
In all, the argument is weak and fails to make the decision of transfering investments profitably. The argument however, might have been a strong one if the firm had taken into account the consumption by all age groups, the variation of prices of the products over the decades, and whether the population increase of older adults was been comparable or higher than other age groups. Without these considerations, the argument falls apart.
"Studies suggest that an average coffee drinker's consumption of coffee increases with age, from age 10 through age 60. Even after age 60, coffee consumption remains high. The average cola drinker's consumption of cola, however, declines with increasing age. Both of these trends have remained stable for the past 40 years. Given that the number of older adults will significantly increase as the population ages over the next 20 years, it follows that the demand for coffee will increase and the demand for cola will decrease during this period. We should, therefore, consider transferring our investments from Cola Loca to Early Bird Coffee."
YOUR RESPONSE:
The argument states that the firm should consider transferring their investments from the Cola products to Cofee products. This argument is based on the premise that average Cola consumption declines with increasing age of adults and Coffee consumption increases simultaneously. However, the argument is flawed as it is based on certain speculative assumptions.
The most important point that the firm overlooks is that it takes into consideration only the cosumption of the products by a certain group of people, and their behaviour towards the products with increasing age. However, the firm fails to take into account the consumption by the younger people and which may come into picture after aging of the group in consideration. In case, the population increases a constant rate, the consumption of both the Cola and Coffee is likely to remain constant as a whole.
Another assumption made by the firm is that the increase in pecentage of the older people will be higher than that of the other age group. This is a weak assumption, as other age group might actually be higher than the increase in older age group or atleast variable.
The firm also assumes that the price of Coffee and Cola products will have no effect on the sales or change in demand of the products. After such a long span of 40 years, the price hike might deter the consumers to change their consumptions upto a certain extent, as the older people might compare the prices to the older prices they used to pay in their younger age.
In all, the argument is weak and fails to make the decision of transfering investments profitably. The argument however, might have been a strong one if the firm had taken into account the consumption by all age groups, the variation of prices of the products over the decades, and whether the population increase of older adults was been comparable or higher than other age groups. Without these considerations, the argument falls apart.
