LR Question 15 Explanation
QUESTION TEXT: For a ten-month period, the total monthly sales of new…
QUESTION TYPE: Must be False
FACTS:
- New car sales in Calistan were constant over a ten month period.
- Marvel’s monthly sales of new cars doubled over this period and Marvel’s market share of new car sales doubled.
- At the end of the ten month period Calistan imposed emissions controls.
- In the following three months Marvel’s market share declined greatly even though its sales remained constant.
ANALYSIS: Clearly the new car market grew. That’s the only way to explain Marvel’s declining share when its sales stayed the same.
___________
- CORRECT. This can’t be true. At least some car companies had to increase their sales. The overall market grew.
- This is possible since it happened before Marvel’s decline of market share.
- This is possible. Maybe Marvel cars are actually quite environmentally friendly and it was some other factor that caused Marvel’s decline.
- This is possible in the long run. We have no idea whether more or less cars will be sold.
- This is possible. A company can increase its profit even if its market share declines.
How do we know for certain that the market grew? I admit I don’t understand how markets work, but I figured it would be possible for the share to go down if they sold the same amount but with a lower price on goods and services. I guess share isn’t profit-based? I would like to know for certain before this question starts to keep me awake at night.
Hi Levi! The LSAT generally doesn’t require you to have advanced economic knowledge but it is a good idea to get a grasp on concepts like market shares as these topics tend to come up relatively often. A company’s market share simply means what percentage of the total sales in the industry that company generated. In this case, we know from the last sentence that Marvel’s monthly sales within Calistan remained constant, but their market share declined. Say they had 1000 sales per month before, which used to constitute 50% of the total market (i.e. their market share was 50%). This means that out of 2000 total car sales in Calistan, 50% were Marvel cars. After this emission imposition, their sales still remained at the same level (1000/month), but their market share declined substantially (let’s say it fell to 20%). So now their same 1000 sales only constitutes 20% of the market, which means all car sales in Calistan must now be at 5000. Hence, the market grew. Hopefully that makes it clearer!
I’m confused, wouldn’t it be possible for A to be true if monthly sales are reported in units sold while market share is reported in dollars (which to my knowledge is not unreasonable since both units and dollars are potentially useful indicators)? Marvel could sell the same number of cars at a lower cost per car, thus reducing their market share as a percentage of dollars in the market. If every car manufacturer where to do this, they could all sell their cars for less than before, some selling then at less of a cut than Marvel. The monthly sales of companies other than Marvel could decrease over the 3 months following the imposition of the emission standards contrary to the choice of selecting A without violating the requirements listed in the prompt.
Is there some underlying assumption about business or safe assumptions that I’m missing? I’d have a hard time getting this question without just eliminating the worse options and hoping I didn’t make a mistake.
Thanks!
>I’m confused, wouldn’t it be possible for A to be true if monthly sales are reported in units sold while market share is reported in dollars (which to my knowledge is not unreasonable since both units and dollars are potentially useful indicators)?
You’re thinking too hard. The question doesn’t make this distinction. So it doesn’t make sense for us to go assuming that reporting figures must be a certain way.
The default assumption is that the figures quoted are comparable. Otherwise, this set of facts loses meaning. The LSAT is big on the principle of charity, where you give statements their most reasonable interpretation.
This isn’t an argument, but it still makes sense to interpret the facts in their most coherent way.
https://en.wikipedia.org/wiki/Principle_of_charity