Critical Reasoning: Paradox Questions
The alfalfa industry requires comparatively large amounts of water. The past decade has seen both a steep rise in the price of water for agriculture and also a rise of 15% in overall profits in the alfalfa industry, even though the market price of alfalfa didn't fluctuate substantially.
Any of the following statements, if true, helps to explain the rise in profits EXCEPT
Bravo!
[[snippet]]If the alfalfa growers are forced to pay more for getting their produce to markets, the paradox of the profits of the alfalfa industry growing by 15% is emphasized, not resolved.
Incorrect.
[[snippet]]A steep increase in the number of growers can explain why revenues (and therefore profits) are still high. You need an answer choice which does not explain the paradox.
Incorrect.
[[snippet]]A substantially lower price for machinery, a major drop in expenses, could explain how profits grew despite higher water prices. You need an answer choice which does not explain the paradox.
Incorrect.
[[snippet]]A nationwide best-seller telling people to eat alfalfa? Yep, this could definitely help explain higher revenues and therefore higher profits. You need an answer choice which does not explain the paradox.
Incorrect.
[[snippet]]The opening of new overseas markets could explain the rise in revenues and therefore in profits. You need an answer choice which does not explain the paradox.
It's true that according to economic theory prices are a function of demand, but we must be careful about making more assumptions than are necessary in solving this CR question. Remember the following:
a) The question belongs to the Profits/Revenues/Expenses type. Therefore, limit your reasoning to the application of this formula. Don't import another economic rule (in this case laws of supply and demand) which is not known to be utilized in CR questions.
b) Even if we were to assume that the grow in supply led to a price decrease, this would still not tell us whether the price decrease affected profits. It could always be that reduction of revenue due to price decreases was offset by the economy of scale, and did not affect profit adversely.
Because of these considerations, this answer choice is not the best of all the answer choices.
