Getting the retailer to buy more from the manufacturer is a necessary condition for the manufacturer's ultimate goal of encouraging...

GMAT Critical Reasoning : (CR) Questions

Source: Mock

Critical Reasoning

Logically Completes

MEDIUM

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Notes

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Getting the retailer to buy more from the manufacturer is a necessary condition for the manufacturer's ultimate goal of encouraging the retailer to sell more. However, because quantity discounts are tied to the quantity that the retailer purchases from the manufacturer—not the quantity that consumers buy—these discounts encourage forward buying: Retailers stockpile the product for future sale at higher prices, which causes booms and busts in wholesale demand. Large variations in demand increase manufacturers' production and distribution costs, thus lowering their profit margin. In order to discourage stockpiling, manufacturers should.

Which of the following most logically completes the argument?

decrease the discount offered for quantity purchases

give larger discounts to the bigger retail chains when they purchase in large quantities

increase the quantity a retailer must buy before a discount applies

make quantity discounts contingent on how quickly retail sales outlets can sell the relevant products

reduce the amount of product that can be bought at discount

Solution

Passage Analysis:

Text from Passage	Analysis
Getting the retailer to buy more from the manufacturer is a necessary condition for the manufacturer's ultimate goal of encouraging the retailer to sell more.	What it says: Manufacturers need retailers to buy more products first, before retailers can sell more to customers What it does: Sets up the manufacturer's main business goal and shows the key relationship they depend on What it is: Author's foundational premise about business relationship
However, because quantity discounts are tied to the quantity that the retailer purchases from the manufacturer—not the quantity that consumers buy—these discounts encourage forward buying	What it says: Quantity discounts are based on what retailers buy from manufacturers, not what customers actually buy from retailers What it does: Introduces a problem with how current discount systems work, contrasting with the goal stated earlier What it is: Author's explanation of current pricing system
Retailers stockpile the product for future sale at higher prices, which causes booms and busts in wholesale demand.	What it says: Retailers hoard products to sell later at higher prices, creating unpredictable ordering patterns What it does: Explains the negative consequence of the discount system mentioned in the previous statement What it is: Author's claim about retailer behavior Visualization: Month 1: Retailer orders 1000 units (boom), Month 2-3: Retailer orders 0 units (bust), Month 4: Retailer orders 1200 units (boom again)
Large variations in demand increase manufacturers' production and distribution costs, thus lowering their profit margin.	What it says: The unpredictable ordering patterns cost manufacturers more money and reduce their profits What it does: Shows how the retailer stockpiling behavior hurts the manufacturers financially What it is: Author's claim about economic consequences Visualization: Stable demand = $50 production cost, $20 profit. Boom/bust demand = $80 production cost, only $5 profit
In order to discourage stockpiling, manufacturers should.	What it says: The passage is asking what manufacturers should do to stop retailers from hoarding products What it does: Sets up the question we need to answer based on all the problems described What it is: Question stem leading to completion choices

Argument Flow:

The argument starts with manufacturers' goal (get retailers to buy more so they sell more), then shows how current quantity discounts create a problem (retailers stockpile instead of selling), explains the negative chain reaction (boom/bust demand patterns), demonstrates the financial damage to manufacturers (higher costs, lower profits), and finally asks for a solution to prevent stockpiling.

Main Conclusion:

There is no explicit conclusion - this is a completion question asking what manufacturers should do to discourage retailer stockpiling based on the problems described.

Logical Structure:

This follows a problem-identification structure: Goal → Current Method → Unintended Consequence → Chain of Problems → Need for Solution. Each premise builds logically toward identifying why manufacturers need a different approach to discourage stockpiling behavior.

Prethinking:

Question type:

Logically Completes - We need to find what manufacturers should do to discourage stockpiling behavior by retailers

Precision of Claims

The argument establishes specific cause-effect relationships: quantity discounts based on retailer purchases (not consumer sales) lead to forward buying, which creates demand volatility, which increases costs and reduces profits

Strategy

Since we know the problem (stockpiling hurts manufacturers through demand volatility), we need solutions that address the root cause. The issue is that current quantity discounts reward retailers for buying large amounts regardless of actual consumer demand. So manufacturers should either change how they structure discounts or create incentives that align retailer purchasing with actual consumer sales

Answer Choices Explained

decrease the discount offered for quantity purchases

This doesn't solve the fundamental problem. Even with smaller discounts, retailers would still be incentivized to stockpile because the discount structure remains tied to purchase quantity rather than sales velocity. This might reduce some stockpiling behavior but wouldn't eliminate the boom-and-bust pattern that's hurting manufacturers.

give larger discounts to the bigger retail chains when they purchase in large quantities

This actually makes the problem worse! Giving even larger discounts for big purchases would encourage more stockpiling, not less. This choice moves in exactly the wrong direction from what we need to discourage the problematic behavior.

increase the quantity a retailer must buy before a discount applies

This also doesn't address the core issue. We're still tying discounts to purchase quantities rather than sales performance. Retailers might still stockpile - they'd just need to buy even more to get the discount, potentially making the boom-and-bust cycles even more extreme.

make quantity discounts contingent on how quickly retail sales outlets can sell the relevant products

This is the correct solution! It directly targets the root cause by changing what triggers the discount. Instead of rewarding retailers just for buying large quantities (which encourages stockpiling), this ties discounts to actual sales velocity. Retailers would only get discounts if they can move products quickly, which discourages stockpiling and aligns retailer behavior with actual consumer demand, reducing the volatile demand patterns that hurt manufacturers.

reduce the amount of product that can be bought at discount

Like choices A and C, this doesn't change the fundamental structure of the discount system. Retailers might still engage in forward buying behavior, just in smaller quantities. This doesn't solve the timing mismatch between retailer purchases and consumer sales that creates the boom-and-bust pattern.

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