#9 - Complaints that milk bottlers take enormous markups

[Administrator]

Complete Question Explanation

Must be True. The correct answer choice is (D)

The stimulus argues that complaints against the price mark-up for milk are most frequent when they are the least justified, since those complaints occur when increasing wholesale prices force up the price to consumers. The argument is based on the idea that since those price increases simply pass the cost directly to the consumer, at that point the price difference is proportionally the least.

In the numbers, the argument makes sense. Basically, it is something like this:

• Wholesale Retail % Markup
  
  Lowest $1.00 $2.00 100%
  
  Highest $2.00 $3.00 50%

Realistically, the argument makes several assumptions such as that the percentage markup is the only thing that could justify complaints; however, you are simply asked to identify what must be true, so you should not worry too much about any logical flaws in the stimulus.

Answer choice (A): The argument is that the percent markup rises, not that the actual retail price rises when wholesale prices fall, so this choice is wrong.

Answer choice (B): This choice does not make sense, since the argument is in part based on the premise that dairy farmers raise their prices from time to time, which may be the result of passing costs along. This response is incorrect.

Answer choice (C): Since the stimulus gave you no information about "extended periods," you should not select this incorrect choice. There is no stated reason to suppose that simply because a markup is higher when prices are low, the markup would continue to increase as the price holds.

Answer choice (D): This is the correct answer choice. The argument is that the markups are proportionally the greatest when prices are dropping, which means that the prices are not decreased proportionally when prices are dropping. Mathematically, a proportional reduction would mean that [Retail/Wholesale] holds the same ratio for the high and the low prices. The passage states that does not occur.

Answer choice (E): You should not confuse the dairy farmers with the milk bottlers. Since you do not know anything about the dairy farmers, other than that they sometimes increase their prices, you cannot tell when they are making the smallest profit. Furthermore, you cannot even be certain that the milk bottlers make the lowest absolute profit when prices are high, only that the profit margin is the lowest when prices are high.

[Mastering_LSAT]

Hello PowerScore,

I was wondering if it is correct on my part to take the following approach with the incorrect answer choice (C). Would greatly appreciate your feedback!

[Rachael Wilkenfeld]

Hi Mastering,

I agree with you overall. I would say there are many reasons to eliminate answer choice (C) here, and any one of them would be enough to knock it out of contention. In order, I would probably eliminate it because of the "extended period" language, then due to the certainty of the language in the answer choice that does not match the certainty of the language in the stimulus, and finally because of the ambiguity with the amount of markup v percent of markup. But again, and of the reasons would be enough to knock that answer choice out of contention.

Great work!

[Mastering_LSAT]

Thank you, Rachael!

[ericsilvagomez]

Hi,

Can you elaborate on how you included the numbers when solving the problem? It's the first time I have encountered it on LR. Also, I selected A, but it was more of a guess because the discussion about the different prices confused me.

[Robert Carroll]

ericsilvagomez,

The numbers are invented to make clear what the stimulus is saying. Modeling a numerical situation with actual numbers can be a useful way to visualize the consequences of the stimulus, which we need to do for a Must Be True question. Obviously, the specific numbers chosen are irrelevant - we just need to make sure that the markup is lower when the raw milk price is higher, and higher when it's lower.

Robert Carroll

[jona_zx]

I eliminated C because I thought it could be theoretically possible that when wholesale prices drop, the drop in retail could be perfectly proportional, and there is only proportionality when the whole prices rise. for example, if WS drops 10%, retail also drops 10%. And when WS increases 10%, retail only increases 7%.

This scenario would still be consistent with the premises that "When the raw-milkprice is rising, the bottlers’ markups are actually smallest proportionate to the retail price. When theraw-milk price is falling, however, the markups are greatest"

[Jeff Wren]

Hi Jona,

First, I just want to check whether you meant that you eliminated D (rather than C)? Answer D is the answer that describes milk bottlers not responding to a drop in raw-milk price by proportionally lowering the price of the bottle milk that they sell.

It’s important to note that when the stimulus discusses the size of the markups, it is referring to the markup as a % of the retail price rather than a raw number. The phrase “the bottlers’ markups are actually smallest proportional to the retail price” is the key indicator.

With this in mind, let’s look at your hypothetical “if WS drops 10%, retail also drops 10%” with some numbers.

Original

Raw-Milk $10

Retail Bottle $20

Markup (as % of retail price) 50%

New

Raw-Milk $9

Retail Bottle $18

Markup (as % of retail price) 50%

As you can see, in this example the wholesale raw-milk and retail bottle have both dropped by 10%. The markup (as a % of the retail price) has not changed. This contradicts the fact in the stimulus that "when raw-milk price is falling, the markups are greatest."

This is why the milk bottlers do not reduce their retail price of bottled milk proportionally to a decrease in the raw-milk price, as stated in Answer D.