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PXC Computers

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by GMATGuruNY » Thu Apr 09, 2015 9:41 am
jainrahul1985 wrote:First-time computer buyers buying PXC home computers typically buy models that cost much less and have a smaller profit margin per computer than do PXC computers bought by people replacing their computers with more powerful models. Last year PXC's profits from computer sales were substantially higher than the previous year, although about the same number of PXC computers were sold and the prices and profit margins for each computer model that PXC sells remained unchanged.

If the statements above are true, which of the following is most strongly supported by them?

(A) PXC's competitors raised the prices on their computers last year, making PXC computers more attractive to first-time computer buyers.
(B) The number of people buying PXC computers who also bought PXC computer-related products, such as printers, was larger last year than the previous year.
(C) Among computer buyers who bought a PXC computer to replace their existing computer, the proportion who were replacing a computer made by a competitor of PXC was greater last year than the previous year.
(D) The proportion of PXC computers bought by first-time computer buyers was smaller last year than the previous year.
(E) PXC's production costs for its computers were lower last year than they had been the previous year.
Facts:
When PXC sells a replacement computer, the profit margin is HIGHER.
Last year PXC's profits from computer sales were substantially higher than the previous year, even though the same number of PXC computers were sold.

Implication:
Last year PXC sold more replacement computers, which have a higher profit-margin.

Answer choice D:
The proportion of PXC computers bought by first-time computer buyers was SMALLER last year, implying that MORE REPLACEMENT COMPUTERS were sold.

The correct answer is D.
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by Apple3-14 » Sat Apr 11, 2015 3:53 pm
Thanks Mitch! I'm also curious to get your take on my reasoning why C is incorrect. Outside of PXC Computers, we really know very little about the overall market itself, so we're not in a position to ascertain whether the competitors either gained ground, lost ground, or remained flat. Is that right?

Thanks again!
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by GMATGuruNY » Sun Apr 12, 2015 2:42 am
Apple3-14 wrote:Thanks Mitch! I'm also curious to get your take on my reasoning why C is incorrect. Outside of PXC Computers, we really know very little about the overall market itself, so we're not in a position to ascertain whether the competitors either gained ground, lost ground, or remained flat. Is that right?

Thanks again!
A correct INFERENCE is a statement that MUST BE TRUE, given the limited information in the passage.
Answer choice C:
Among computer buyers who bought a PXC computer to replace their existing computer, the proportion who were replacing a computer made by a competitor of PXC was greater last year than the previous year.
The passage discusses people replacing their computers with MORE POWERFUL MODELS.
No information is given about the MANUFACTURER of the models being replaced.
Thus, it does not have to be true that the proportion made by a competitor of PXC was greater last year than the previous year.
Eliminate C.
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by src_saurav » Mon Apr 13, 2015 10:30 am
I thought E was a more air tight answer as argument says same number of items sold,so it would be the production cost that went lower.Kindly explain why this is not the answer.
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by GMATGuruNY » Fri Apr 17, 2015 6:00 am
src_saurav wrote:I thought E was a more air tight answer as argument says same number of items sold,so it would be the production cost that went lower.Kindly explain why this is not the answer.

Passage: The prices and profit margins for each computer model that PXC sells remained unchanged.
E: PXC's production costs for its computers were lower last year than they had been the previous year.
Lower costs imply higher profit margins.
Since E contradicts the passage's assertion that profit margins REMAIN UNCHANGED, eliminate E.
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by jain2016 » Thu May 05, 2016 8:53 am
Hi GMATGuruNY ,

I am still confused with the OA.

Fact : Last year PXC's profits from computer sales were substantially higher than the previous year, even though the same number of PXC computers were sold.

But OA says that first time computer buyers was smaller last year, so how come the profits were higher in last year. Also we have a fact that same number of computers were sold, But says that buyers were smaller in last year than means few number of computers sold last year.


Please explain and correct me sir.

Many thanks in advance.

SJ
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by DavidG@VeritasPrep » Thu May 05, 2016 9:18 am
jain2016 wrote: Fact : Last year PXC's profits from computer sales were substantially higher than the previous year, even though the same number of PXC computers were sold.

But OA says that first time computer buyers was smaller last year, so how come the profits were higher in last year. Also we have a fact that same number of computers were sold, But says that buyers were smaller in last year than means few number of computers sold last year.


Please explain and correct me sir.

Many thanks in advance.

SJ
There are two kinds of buyers here:

A) First time buyers
B) Buyers replacing old models

We know that profit margins for A-buyers are less than the profit margins for B-buyers. So if the same number of computers were sold last year as were sold the year before, but profits have gone up, it means that the proportion of high-margin buyers (B) has increased and the proportion of low-margin buyers (A) has decreased.

Or assign simple numbers to make this clearer. Imagine in category A (first time buyers), the profit margin is $100 per computer, and in B (replacement buyers), the profit margin is $200 per computer.

Year 1: If you sell one computer to each kind of buyer, your profit will be 100 + 200 = $300 on two computers
Year 2: If you see two computers to buyer B, your profit will be 200 + 200 = $400 on two computers.

The overall profit can increase despite the fact the number of computers sold and the profit margins for each type of computer remain unchanged, so long as the composition of the computers sold is tilted more heavily towards the higher-margin computers.
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