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Algorpal Industries produces high quality pneumatic filters

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Algorpal Industries produces high quality pneumatic filters. For years, they have primarily served manufacturers of domestic agricultural equipment, and over time, this market has been decreasing. A consultant recommended that, with a minor modification, Algorpal could expand into pneumatic filters for biomedical research technology, a rapidly expanding market. The consultant argued that this single change could reverse a ten-year decline in Algorpal’s profits.
Which of the following would be the most useful to establish in evaluating the consultant’s recommendation?

A.)Whether other markets, such as food processing and food service, would offer greater opportunities for potential profits.
B.)Whether the number of biomedical devices at any single research center is greater than the number of pieces of equipment requiring filters on a single farm.
C.)How the ambient indoor air quality in a biomedical research center compares to the typical outdoor air quality in an agricultural zone.
D.)Whether the competition in the biomedical technology sector would allow for profits similar to what those in the agricultural sector had been
E.)Whether countries with expanding agricultural sectors would use farm equipment similarly to the domestic equipment current served by Algorpal.

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The core of the consultant’s argument is: branching into this new sector will bring new profits, profits to replace what was lost in the agriculture sector. The credited answer is (D): whether branching into this new biomedical sector indeed will replace the former profits.

Choice (A) raises a different question, profits from a third sector not mentioned. This might offer yet another alternative, but it’s not directly relevant to the question: will entering the biomedical sector replace former profits?

Choice (B) might appear to be relevant to the question of profits, but suppose we knew the precise answer to this — suppose we knew, say, that each farm had five machines and each research center had three machines. Then what? How many farms overall are there? How many biomedical research centers overall are there? We don’t know, so we can’t evaluate the question of total profits.

Choice (C) is an interesting distractor. Whatever a pneumatic filter may filter, it probably has something to do with air. Are these filters filtering ambient air in the room, or are they filtering some particular internal channel within the machine? We don’t know, and even if we did, we would still be a long way off from deciding anything about profits.

Choice (E), like Choice (A), offers another option, another avenue that Algorpal might decide to follow instead of, or in addition to, the consultant’s recommendation. The task here, though, quite specifically, is to evaluate the consultant’s recommendation. How successful another avenue would be tells us nothing about how successful the plan recommended by the consultant would be. 

answered Jul 14, 2014 by Senior Associate (475 points)
selected Jul 14, 2014 by
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Jyotsna Mehta

Indian School of Business, Co'18

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