In the United States Profits from Sales of Grainco’s Biggest Selling Product, Cornflakes, have Dropped by 30 Percent Over the Last 3 Years

Question: In the United States profits from sales of Grainco’s biggest selling product, cornflakes, have dropped by 30 percent over the last 3 years. During this same time, the value of a share of Grainco stock rose by over 20 percent. This is puzzling because the value of a stock usually decreases when a company’s sales decrease.

Which of the following, if true during the last 3 years, most helps to explain why the value of a share of Grainco stock moved in the way that it did?

(A) Severe drought in the Midwest destroyed a large percentage of the corn crop, forcing Grainco to buy less corn.
(B) Grainco closed a food processing plant in a locality that offered cheap labor and low taxes.
(C) Profits from sales of Grainco oatmeal, which account for a large part of Grainco’s total sales and profits, increased dramatically in both the foreign and domestic markets.
(D) Grainco employees formed a union that helped them get higher salaries and increased medical benefits.
(E) Several articles in prominent business publications listed Grainco as a company that has poor management.

In the United States profits from sales of Grainco’s biggest selling product, cornflakes, have dropped by 30 percent over the last 3 years- is a GMAT Critical question. This particular GMAT Critical Reasoning topic has been taken from the book ‘GMAT Critical reasoning problems: master over 350 problems of 700-800 level’. This particular topic is the Assumption and conclusion type of question. For this type, the candidates need to provide an assumption which supports the conclusion provided in the passage. GMAT critical reasoning tests the logical and analytical skills of the candidates. Critical reasoning in GMAT requires candidates to find the strengths and weaknesses of the argument, or find the logical flaw in the argument. The GMAT CR section contains 10 -13 GMAT critical reasoning questions out of 36 GMAT verbal questions.

Answer: C
Explanation:

A GMAT Critical Reasoning section comprises some facts and arguments. GMAT critical reasoning tests the reasoning, logical and analytical thinking abilities of the candidate. The candidate has to deduce the correct option by finding the logically correct argument or by eliminating the irrelevant arguments.

The statement states - In the United States profits from sales of Grainco’s biggest selling product, cornflakes, have dropped by 30 percent over the last 3 years. During this same time the value of a share of Grainco stock rose by over 20 percent. This is puzzling because the value of a stock usually decreases when a company’s sales decrease.

Which of the following, if true during the last 3 years, most helps to explain why the value of a share of Grainco stock moved in the way that it did?

1. This argument doesn't help the paradox i.e. drop in sales but an increase in stock price.
2. This would have an adverse effect on production, which might explain some part of the sales drop, but it still doesn't explain why the stocks went up.
3. This is the most relevant option. Oatmeals increased dramatically, this accounts for a large part of total sales and profits.
4. This is an irrelevant argument. It has no relation to the question asked.
5. This argument is irrelevant, and if anything, this would adversely affect the company's image in the market. This cannot be the correct answer.

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