#Percentages in CR #Inference

Question


The cost of producing radios in Country Q is 10 percent less than the cost of producing radios in Country Y. Even after transportation fees and tariff charges are added, it is still cheaper for a company to import radios from Country Q to Country Y than to produce radios in Country Y.

The statements above, if true, best support which of the following assertions?

(Because of copyrights, the complete official question is not copied here. You can access the question here: GMAT Club)

Difficulty: Low

Accuracy: 85%

Based on: 2768 sessions

Solution


The Story

The cost of producing radios in Country Q is 10 percent less than the cost of producing radios in Country Y. – Producing radios is cheaper in Q than in Y – by 10%.

Even after transportation fees and tariff charges are added, it is still cheaper for a company to import radios from Country Q to Country Y than to produce radios in Country Y. – Even after adding two import-related charges, it is still cheaper to import radios from Q than to produce radios in Y.
(Reminds me of Amazon shopping. The same product is available from two sellers. One offers free delivery. The other charges for delivery. But, the price quoted by the second seller is so low that even after adding the delivery charge the final price is lower than the price quoted by the first seller.)

Question Stem

The statements above, if true, best support which of the following assertions?

Framework:
The correct answer would be an inference or at least something that is highly likely to be true based on the passage.

Let’s look at the answer choices.

Answer choice analysis


Answer Choice: A

Incorrect

Selected by: 8%

We know that the overall cost of producing radios is lower in Q. But, there is no mention of why that’s the case. Is producing radios cheaper because of cheaper raw materials, more efficient manufacturing processes, lower labour costs, or some other factor? We have no idea. Can’t conclude that a particular component – labor costs – is cheaper.

Additional note: At the risk of getting too technical, let’s say we were given that radios are cheaper to produce in Q entirely because of lower labor costs. Would the labor costs be 10% below?
10% of what? 10% of the labor costs in Y, right?
Let’s say, producing a radio costs $20 in Y and $18 in Q (10% lower).
And, labor costs in Y are $10/ radio.
Then labor costs in Q would be 10 – 2 = $8.
$10 v/s $8. That’s a 20% decrease.
So, although we don’t need to worry about this nuance to eliminate this answer choice, it is still worth noting that the passage talks about 10% of the total cost of producing, and the answer choice mentions 10% of the labor costs.

This answer choice is the most commonly selected incorrect answer on GMAT Club. I believe one reason is that some people treat this question as a ‘strengthen’ question. Remember, our job here is not to support the passage, but to figure out which answer choice is best supported by the passage.


Answer Choice: B

Incorrect

Selected by: 1%

10% of what kind of jobs? Radio manufacturing jobs? No, “10 percent of the manufacturing jobs”. That means 10% of [all] manufacturing jobs. All we know is that in Y radios are cheaper to get from another country even after including delivery charges. We have no idea about any repercussions on jobs within the radio industry, let alone in all manufacturing industries.

In fact, do we even know where citizens of Country Y are buying their radios from? All we have is a production price comparison. We don’t even know whether citizens of Y are actually choosing radios from Q instead. E.g., maybe Country Y has a ‘Make in Y’ campaign going on, and the citizens prefer buying goods made in Y even if they are a bit more expensive.


Answer Choice: C

Correct

Selected by: 85%

“Tariff” – ahh! the second additional cost. This one fits.

We’re given that:

  1. Production cost is 10% lower in Q.
  2. Even with transportation fees and tariff charges, it is cheaper to import radios from Q than to produce in Y.

So, the additional costs must add up to less than 10% of the production cost in Y. Otherwise, it would not still be cheaper to import from Q than to produce in Y. The two components together must add up to less than 10%, so one of them (tariff charges) must certainly be less than 10% of the radio production cost in Y.


Answer Choice: D

Incorrect

Selected by: 4%

We can infer that the transportation fees are less than 10% of the cost of manufacturing the radio in Country Y. However, how do transportation fees compare with “10 percent of the cost of manufacturing the radio in Country Q“? We can’t say.

Say, the cost of producing a radio in Y is $100
Then, the cost of producing a radio in Q would be $90 (10% less)
The transportation fees would be within $10 (10% of $100). But, how would the transportation fees compare with $9 (10% of $90)? Can’t say. The transportation fees may be less than $9, exactly $9, or between $9 and $10. So, this answer choice is not supported by the passage.


Answer Choice: E

Incorrect

Selected by: 2%

The lower production cost could be because of higher efficiency (and thus lower time to manufacture). However, there is nothing mentioned in the passage to indicate a relation between lower production costs and speed of manufacture.

Additional Notes


When it comes to percentages, it is very important to be mindful of what those percentages represent. Basically, asking the question: 10% of what?

E.g. answer choice D compares the transportation fee with 10% of the cost of manufacturing the radio in Country Q (not Y). The official explanation for rejecting answer choice D is:

If transportation costs were more than 10 percent, importing would be more expensive, not less.

This explanation is flawed. Even if transportation costs were more than 10% of the cost of manufacturing a radio in Country Q, the costs could still be less than 10% of the cost of manufacturing a radio in Country Y. So, importing to Y could still be cheaper. (You can refer to the numerical example I have discussed with answer choice D above.)

If you have any doubts regarding any part of this solution, please feel free to ask in the comments section.

Anish Passi

GMAT Coach

With over a decade of GMAT training experience, top 1 percentile scores on the CAT and GMAT, and a passion for teaching, I’d like to believe I am quite qualified to be a GMAT coach. GMAT is learnable, and I help students master the GMAT through a process-oriented approach based on logic and common sense. I offer private tutoring and live-online classroom courses. My sessions are often sprinkled with real-world examples, references to movies, and jokes that only I find funny. You’ve been warned 🙂

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