GMAT Essays (AWA)

The following appeared as part of the business plan of the Capital Idea investment firm:
“Across town in the Park Hill district, the Thespian Theater, Pizzazz Pizza, and the Niblick Golf Club have all had business increases over the past two years. Capital Idea should therefore invest in the Roxy Playhouse, the Slice-o’- Pizza, and the Divot Golf Club, three new businesses in the Irongate district. As a condition, we should require them to participate in a special program: Any customer who patronizes two of the businesses will receive a substantial discount at the third. By motivating customers to patronize all three, we will thus contribute to the profitability of each and maximize our return.”
Discuss how well reasoned . . . etc.

The argument that Capital Idea should invest in these business is fundamentally flawed for numerous reasons. The author utilizes ambiguous wording and wrong cause and effect relationships. The conclusion of this passage relies on various assumptions that are not substantiated.
Firstly, the argument starts with the “business increases” that Park Hill district has seen over the past two years in the mentioned businesses. Have these been increases in revenue, customer share, or perhaps employment? The passage fails to address by what amount have these businesses been increasing nor does it provide any information regarding its profitability. If the businesses are operating at a loss but have increased their customers and revenue for the past two years, it may still be unprofitable to manage such a company. On the other hand, if these increases have been minimal such that they constitute less than 1% of the revenues, Capital Idea might be better off investing in something with a greater return of investment. Had the argument present more information regarding the profitability and the nature of the increase of the businesses, it would make this passage more convincing.
In addition, the argument relies on the assumption that since Park Hill district has been increasing its business in the past two years, this will continue in the future. This might not be the case, for example, there have been multiple recessions throughout the decades and economists suggest that there will be another one at some point in the future. Moreover, assuring that Park Hill district is the same as Irongate district is a wrong assumption to make. These districts might be different in terms of population, demographics, and median income of its citizens. An increase in business in Park Hill district does not warrant the same success for another district. The argument could be improved by offering insights on the similarities between the incomes, demographics, population density, and more relevant data showing the similarities between the districts.
Lastly, Capital Idea is relying that upon providing a discount in one business, customers will be willing to patronize all three businesses. This assumption might not be the case since a customer that likes pizzas might not also like golf, and viceversa. The author does not provide any further explanation to describe the price reduction that the company is willing to offer. To get consumers more interested, the company might have to offer discounted rates that are no longer profitable.

In conclusion, the argument presents numerous flaws and assumptions that can be addressed as explained above.

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