A product that represents a clear technological advance over competing products can generally command a high price. Because technological advances...

GMAT Critical Reasoning : (CR) Questions

Source: Official Guide

Critical Reasoning

Boldface

HARD

...

Notes

Post a Query

A product that represents a clear technological advance over competing products can generally command a high price. Because technological advances tend to be quickly surpassed and companies want to make large profits while they still can, many companies charge the maximum possible price for such a product. But large profits on the new product will give competitors a strong incentive to quickly match the new product's capabilities. Consequently, the strategy to maximize overall profit from a new product is to charge less than the greatest possible price.

In the argument above, the two portions in boldface play which of the following roles?

The first is a consideration that has been raised to argue that a certain strategy is counterproductive; the second presents that strategy.

The first is a consideration raised to support the strategy that the argument recommends; the second presents that strategy.

The first is a consideration raised to help explain the appeal of a certain strategy; the second presents that strategy.

The first is an assumption, rejected by the argument, that has been used to justify a course of action; the second presents that course of action.

The first is a consideration that has been used to justify pursuing a goal that the argument rejects; the second presents a course of action that has been adopted in pursuit of that goal.

Solution

Understanding the Passage

Text from Passage	Analysis
"A product that represents a clear technological advance over competing products can generally command a high price."	What it says: When a company creates a product that's significantly better than what competitors offer, they can typically charge customers a lot of money for it. Visualization: iPhone vs. basic phones in 2007: iPhone could charge $599 while basic phones sold for $150 because of superior technology. What it does: This establishes the basic business principle that technological superiority allows premium pricing. Source: Author's view - presented as a generally accepted business fact.
(Boldface 1) "Because technological advances tend to be quickly surpassed and companies want to make large profits while they still can, many companies charge the maximum possible price for such a product."	What it says: Since new technology becomes outdated fast and companies want to earn as much money as possible before that happens, many businesses set their prices at the highest level customers will pay. Visualization: Company develops revolutionary smartphone → Knows competitors will copy features within 12 months → Charges $1000 (maximum possible) instead of $700 to maximize profits during their 12-month advantage window. What it does: This explains the reasoning behind why companies choose maximum pricing strategies for new technology products. Source: Author's view - explaining common business behavior and its rationale.
"But large profits on the new product will give competitors a strong incentive to quickly match the new product's capabilities."	What it says: However, when companies make huge profits from their new products, this motivates rival companies to work hard and fast to create similar products with the same features. Visualization: Company A charges $1000 for new smartphone, making $600 profit per unit → Competitors see this massive profit margin → Rush to develop similar phones within 6 months instead of usual 18 months. What it does: This introduces a consequence that challenges the maximum pricing strategy - it actually speeds up competitive response. Source: Author's view - pointing out a negative consequence of the maximum pricing approach.
(Boldface 2) "Consequently, the strategy to maximize overall profit from a new product is to charge less than the greatest possible price."	What it says: As a result of this competitive response, the best approach to earn the most total money from a new product over time is to set prices lower than the maximum amount you could charge. Visualization: Instead of charging $1000 maximum → Charge $750 → Competitors take 12 months to respond instead of 6 months → Sell more units over longer period → Total profit: $180 million vs. $120 million from maximum pricing. What it does: This presents the author's conclusion about the optimal pricing strategy, directly contradicting the maximum pricing approach. Source: Author's view - the main conclusion of the argument.

Overall Structure

The author is presenting an argument that challenges conventional business wisdom about pricing new technology products. The flow moves from establishing a basic principle, explaining common practice, identifying a flaw in that practice, and concluding with a better alternative strategy.

Main Conclusion: The strategy to maximize overall profit from a new product is to charge less than the greatest possible price.

Boldface Segments

Boldface 1: Because technological advances tend to be quickly surpassed and companies want to make large profits while they still can, many companies charge the maximum possible price for such a product.
Boldface 2: Consequently, the strategy to maximize overall profit from a new product is to charge less than the greatest possible price.

Boldface Understanding

Boldface 1:

Function: Explains the reasoning behind why many companies choose maximum pricing strategies for new technology products
Direction: Opposite direction - This describes a practice that the author ultimately argues against. While not explicitly criticized here, it sets up the strategy that will be shown to be suboptimal.

Boldface 2:

Function: States the author's main conclusion about optimal pricing strategy
Direction: Same direction - This directly supports and IS the author's ultimate position on how companies should price new products.

Structural Classification

Boldface 1:

Structural Role: Explanation of reasoning behind a commonly used strategy that the author will argue against
Predicted Answer Patterns: "reasoning for a strategy that the argument opposes" or "explanation of an approach the author argues is suboptimal"

Boldface 2:

Structural Role: Main conclusion of the argument
Predicted Answer Patterns: "the argument's main conclusion" or "the strategy the author advocates"

Answer Choices Explained

The first is a consideration that has been raised to argue that a certain strategy is counterproductive; the second presents that strategy.

'The first is a consideration that has been raised to argue that a certain strategy is counterproductive' - ✗ WRONG - The first boldface doesn't argue that maximum pricing is counterproductive. Instead, it explains why companies find this strategy appealing by stating their reasoning (wanting large profits quickly).
'the second presents that strategy' - ✗ WRONG - The second boldface presents the author's recommended strategy (charging less than maximum), not the strategy being criticized.

The first is a consideration raised to support the strategy that the argument recommends; the second presents that strategy.

'The first is a consideration raised to support the strategy that the argument recommends' - ✗ WRONG - The first boldface supports maximum pricing strategy, but the argument actually recommends the opposite strategy (charging less than maximum).
'the second presents that strategy' - ✓ CORRECT - The second boldface does present the strategy that the argument recommends (charging less than the greatest possible price).

The first is a consideration raised to help explain the appeal of a certain strategy; the second presents that strategy.

'The first is a consideration raised to help explain the appeal of a certain strategy' - ✓ CORRECT - The first boldface explains why companies find maximum pricing appealing: they want to make large profits while they can, before technological advances are surpassed.
'the second presents that strategy' - ✓ CORRECT - The second boldface presents the author's recommended pricing strategy of charging less than the maximum possible price.

The first is an assumption, rejected by the argument, that has been used to justify a course of action; the second presents that course of action.

'The first is an assumption, rejected by the argument, that has been used to justify a course of action' - ✗ WRONG - The first boldface isn't an assumption that must be true for the argument to work. It's an explanation of companies' reasoning, and the author doesn't reject this reasoning as false.
'the second presents that course of action' - ✗ WRONG - The second presents the author's recommended course of action, not the one being criticized.

The first is a consideration that has been used to justify pursuing a goal that the argument rejects; the second presents a course of action that has been adopted in pursuit of that goal.

'The first is a consideration that has been used to justify pursuing a goal that the argument rejects' - ✗ WRONG - The argument doesn't reject the goal of making large profits. The argument rejects the METHOD (maximum pricing) but agrees with the goal of maximizing overall profit.
'the second presents a course of action that has been adopted in pursuit of that goal' - ✓ CORRECT - The second does present a course of action (charging less than maximum) to pursue the goal of maximizing overall profit.

Rate this Solution

Tell us what you think about this solution

...

Forum Discussions

Start a new discussion

Post

Previous Attempts

Loading attempts...