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The last paragraph performs which of the following main functions in the passage?

Good job!

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The third paragraph describes the extension strategy which Kellogg's used to solve the problem of the Nutri-Grain brand's declining sales.

Incorrect.

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Although the second paragraph describes the problem Nutri-Grain faced, the third paragraph describes the solution to that problem, rather than gives further information on it.

Incorrect.

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The strategy of reviving the product is mentioned in the last sentence of the first paragraph, but is hardly described. You are correct that A is a possible/plausible answer choice, but providing an example for the strategy of reviving is not really the main function of the third paragraph, which deals with Kellogg's solution to the problem of Nutri-Grain's competition towards the end of its life cycle. Thus, it's not so much that A is wrong, as that C is a more correct description of the function of the last paragraph.

Incorrect.

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The second paragraph provides an example, not evidence, of the life cycle of a specific brand, Nutri-Grain.

Incorrect.

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Diversification and development are two types of extension strategies that were possible solutions to Nutri-Grain's problems.

It presents an example of a strategy described in the first paragraph.
It further elaborates on a problem discussed in the second paragraph.
It describes the solution to a problem introduced in the second paragraph.
It provides evidence for a theory of life cycles offered in the first paragraph.
It introduces three possible solutions, an extension strategy, diversification and development, to the problem discussed in the second paragraph.