Five years ago, the hair dryer produced by the Wilson Appliance Company accounted for 50 percent of all sales of hair...

Ryan on September 23 at 01:17PM

Why is A correct? Why is D incorrect?

Thanks

1 Reply

Irina on September 23 at 06:02PM

@Ryan-Mahabir,

The argument tells us that the market share of hair dryers went down from 50% to 25% but the net income on each hair dryer sold remained the same, hence the net income from hair dryer sales must have gone down 50% as well. The argument is flawed because it switches from using percentages to absolute numbers - the fact that market share went down to 25% is not equivalent to saying that the number of units sold went down 25% as well. Let's say 100 hairdryers are sold a month. The company sells 50 of these hairdryers or has 50% market share. Then due to a sudden increase in demand, the hairdryer sales went up to 200 units sold per month. Competitor companies enter the market in response to the increased demand, and now even though the company still sells 50 units a month, its market share has gone down to 25% because the overall market is 200 units/ 100%. Considering the net income per unit sold stayed the same, and the number of units stayed the same, the overall net income from hairdryer sales must have stayed the same in this scenario. (A) correctly summarizes this flaw and is thus the correct answer choice. (D) is irrelevant because the argument tells us that net income per hairdryer stayed the same, thus even if the retail price have gone up, the expenses must have gone up as well resulting in the same net income per hair dryer. The retail price would make a difference only if the argument concerned the revenues per hair dryer rather than net income.

Let me know if this makes sense and if you have any further questions.