QUESTION TEXT: Computer store manager: Last year we made…
QUESTION TYPE: Flawed Reasoning
CONCLUSION: We should sell only low end models.
REASONING: We make a higher profit margin on low end models. So we’ll make more profits by selling low end models.
ANALYSIS: Note that any sentence with ‘should’ is usually the conclusion.
This argument confuses profits and profit margins. Profit margins are percentages: you make, for example, 8% of the sale price.
Profits are dollar amounts: you make, for example, $500 whenever you sell a certain computer.
High end computers might be more profitable, even if they have a lower margin. I’d rather make 5% of a $2000 sale than 10% of a $400 sale. That’s $100 instead of $40.
___________
- CORRECT. See the explanation above. I’d rather get more money from a high end sale, even if the profit percentage is lower.
- This doesn’t quite work. If you sell the same amount of computers of each type, you’re still making a higher margin on the low end models.
- So? The point is that lower end models have a higher profit margin. You might prefer that the customer buys the low end model.
- The manager doesn’t say profits are the only objective. But his proposal seems like it will increase profits without harming other objectives. That’s a win.
- Well duh. Sales are always going to fluctuate. But there’s no reason to believe low end sales will be consistently worse than high end sales in the future.
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