The owner of the Holiday Antique Shoppe plans to increase profits by selling gift certificates for 10% less than their...

GMAT Critical Reasoning : (CR) Questions

Source: Mock

Critical Reasoning

Weaken

MEDIUM

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The owner of the Holiday Antique Shoppe plans to increase profits by selling gift certificates for $10\%$ less than their face value. He reasons that customers will eagerly buy the certificates as gifts for friends and family members in the belief that the customers are getting a discount, but that many recipients of the gift certificates will not be interested in antiques, and so will neglect to redeem the certificates.

Which of the following, if true, presents the most serious potential weakness of the plan?

Customers who buy the gift certificates would be likely to redeem them themselves in order to pay $10\%$ less for antiques they had already intended to buy

The store's profit margin on many new items is less than $10\%$ of the item's normal, undiscounted prices

Most customers would be at least slightly less likely to buy gift certificates for people whom they believe would neglect to redeem certificates

If the store did not offer the certificates, many customers would instead directly buy antiques from the store as gifts for people who are not interested in them

When another nearby antique store sold gift certificates for their face value, most of the certificates were never redeemed

Solution

Passage Analysis:

Text from Passage	Analysis
The owner of the Holiday Antique Shoppe plans to increase profits by selling gift certificates for 10 percent less than their face value.	What it says: Owner wants to boost profits by selling gift certificates at a 10% discount What it does: Sets up the business plan we're going to examine What it is: Author's description of the plan Visualization: $\$100$ gift certificate sold for $\$90$
He reasons that customers will eagerly buy the certificates as gifts for friends and family members in the belief that the customers are getting a discount	What it says: Owner thinks people will buy these discounted certificates as gifts because they feel like they're saving money What it does: Explains the first part of why the owner thinks this plan will work What it is: Owner's reasoning/assumption
but that many recipients of the gift certificates will not be interested in antiques, and so will neglect to redeem the certificates.	What it says: Owner expects many gift receivers won't care about antiques and won't use the certificates What it does: Completes the owner's logic - connects the discount strategy to profit increase What it is: Owner's key assumption Visualization: Out of 100 certificates sold: 70-80 won't be redeemed, so shop keeps that money without giving products

Argument Flow:

The argument presents a business plan step-by-step: first the strategy (sell discounted certificates), then the owner's reasoning for why people will buy them (perceived discount), and finally why this will increase profits (many won't be redeemed).

Main Conclusion:

The owner believes selling gift certificates at 10% below face value will increase profits.

Logical Structure:

The plan relies on two key assumptions working together: (1) customers will buy discounted certificates as gifts, and (2) many recipients won't redeem them. If both happen, the shop gets money upfront but doesn't have to provide full value in products, creating profit.

Prethinking:

Question type:

Weaken - We need to find information that would reduce our belief in the owner's conclusion that this plan will increase profits

Precision of Claims

The owner's plan depends on two key activities: (1) customers buying discounted certificates believing they're getting a deal, and (2) many recipients not redeeming the certificates so the shop keeps that money without giving products

Strategy

To weaken this plan, we need to find scenarios that would either reduce certificate sales or increase redemption rates beyond what the owner expects. We should look for factors that would disrupt the owner's assumptions about customer behavior or gift certificate usage patterns.

Answer Choices Explained

Customers who buy the gift certificates would be likely to redeem them themselves in order to pay $10\%$ less for antiques they had already intended to buy

This presents a serious weakness because it suggests customers would use the certificates themselves rather than give them as gifts. The owner's plan depends on low redemption rates from uninterested gift recipients, but if customers keep the certificates to get 10% off their own purchases, redemption rates would be nearly 100%. This would mean the shop gives discounts without the benefit of unredeemed certificates, directly undermining the profit-increasing goal.

The store's profit margin on many new items is less than $10\%$ of the item's normal, undiscounted prices

While this might affect overall profitability, it doesn't directly weaken the gift certificate plan itself. The owner could still increase profits through unredeemed certificates even if some items have low profit margins. This doesn't address the core mechanism of the plan - that many certificates won't be redeemed.

Most customers would be at least slightly less likely to buy gift certificates for people whom they believe would neglect to redeem certificates

This suggests customers might be slightly less likely to buy certificates for people they think won't use them. However, this is actually somewhat aligned with the owner's reasoning - he expects customers to buy certificates believing they're getting a discount. The word 'slightly' also minimizes the impact, making this a weak objection to the plan.

If the store did not offer the certificates, many customers would instead directly buy antiques from the store as gifts for people who are not interested in them

This describes what might happen if the plan weren't implemented, but doesn't weaken the plan itself. Whether customers would buy antiques directly as gifts doesn't impact whether the gift certificate plan would increase profits. This is more about alternative scenarios than plan effectiveness.

When another nearby antique store sold gift certificates for their face value, most of the certificates were never redeemed

This provides evidence that supports rather than weakens the plan. If another store's certificates weren't redeemed, this suggests the owner's assumption about low redemption rates might actually be correct. This would strengthen rather than weaken confidence in the plan's success.

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