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]
South African diamond company--CR
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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.
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.
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!
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!
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