South African diamond company--CR

This topic has expert replies
Senior | Next Rank: 100 Posts
Posts: 57
Joined: Sun Jul 06, 2008 10:52 am
Thanked: 1 times
GMAT Score:640

South African diamond company--CR

by iikarthik » Mon May 31, 2010 5:24 am
Jack Bygrave is an executive at a major South African diamond company that produces 2% of the world's total annual diamond production. The CFO is anxious to maximize revenues and increase sales. Bygrave, however, believes that increased sales would only drive down the world price of diamonds and lower revenues. Which of the following represents the logical flaw in Bygrave's reasoning?

A) Jack connects the price of unrefined diamonds and the price of jewelry-quality diamonds.

B) He assumes that production goals are similar to financial goals.

C) He assumes that the supply produced by his company can significantly alter the aggregate supply for the market.

D) He assumes that seasonal and long term supply are proportional.

E) He correlates long-term and short-term demand.

I feel that B is also a possible answer as CFO is talking about incresing sales and revenue (which doesnt mean increase in production).Pls correct me if am wrong.Have given the OA below.

Thanks
karthik

The OA is [spoiler](C) Since the company only makes 2% of the world's total diamond production, its output can hardly affect world diamond supply and prices. Jack erroneously assumes that what happens at his company will affect the world diamond market.[/spoiler]

Legendary Member
Posts: 610
Joined: Fri Jan 15, 2010 12:33 am
Thanked: 47 times
Followed by:2 members

by kstv » Mon May 31, 2010 6:27 am
2% of the market share is far from a monopoly. Bygrave will not even be able to sucessfully form a cartel to influence prices.
The price is dependent on supply, assuming demand is constant here. From 2% base only exponential growth like 2^5 will make Bygrave influence prices.
It that too much eco?

B ) He is not assuming prod goals are similar to financial goals, he thinks they are inversely proportional.

Master | Next Rank: 500 Posts
Posts: 186
Joined: Fri May 28, 2010 1:05 am
Thanked: 11 times

by jube » Mon May 31, 2010 7:27 am
Bygrave, however, believes that increased sales would only drive down the world price of diamonds and lower revenues - is the key sentence here.

It implies that Bygrave belives that the diamonds mined by his company will be enough to increase sales substantially which in turn would lead to lowering of prices etc i.e. the diamonds his company mines will change the supply dynamics in the world such that there will be an overall decrease in the prices of the diamond etc. etc.

B as far as I can see is not covered by the passage at all - not sure if that helps though!

Newbie | Next Rank: 10 Posts
Posts: 1
Joined: Fri Feb 12, 2021 9:43 pm

Re: South African diamond company--CR

by Chaitanyakale » Fri Feb 12, 2021 9:49 pm
Great Information was very useful for me.