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#9 - Complaints that milk bottlers take enormous markups

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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.