If grain prices double

Answer choices

1. A

   No Distinction1% picked this

   Farmers engaged in very large-scale cattle production generally try to reduce the labor costs involved in the production

   An answer will be worthless to us if it doesn't provide a distinction between bread and beef, when it comes to use of grain. This answer only talks about beef.

   1%
2. B

   No Impact11% picked this

   The wholesale price per pound of beef is approximately ten times the wholesale price per

   This tells us how the price of beef and bread compare in relative terms, but it doesn't speak to how one uses grain differently from the other. We're not concerned with which product has the higher starting price. We're concerned with why a spike in grain prices affects one price more than the other price.

   11%
3. C

   Correct82% picked this

   The labor and marketing costs in producing and selling bread represent most of its cost, but the cost of feeding cattle represents most

   Why this is right

   This provides the distinction we were looking for, where we learn that grain is a more important ingredient / bigger expense category when it comes to beef than when it comes to bread. If a bread company is selling loaves for $3, their expenses for that loaf of bread are less than $3 (otherwise they wouldn't make any profit). Suppose their expense breakdown is like this: $0.30 - grain $0.20 - yeast $0.20 - sugar $0.30 - eggs $1.50 - labor / marketing $2.50 - total expenses If grain doubles, it'll mean that the grain part now costs 60 cents. So now the total expense will be $2.80. The bread maker might need to raise the price of bread to like $3.30 to still make the same profit. That was a 10% increase in price. Meanwhile, for beef, let's say a certain quantity of beef costs $3 and the expense breakdown is as follows: $2.00 - grain $0.25 - labor / marketing $0.25 - distribution $2.50 - total expenses If the cost of grain doubles, it will now be $4, and so the total expenses will be $4.50 per unit of beef. That means the cost of beef will now need to be like $5 per unit to make the same profit. The price came close to doubling.

   Skill tested: Paradox · how this choice captures the argument's function is the move to repeat next time.

   82%
4. D

   No Distinction4% picked this

   Only an insignificantly small proportion of the beef sold in retail markets is produced from cattle fed on

   An answer will be worthless to us if it doesn't provide a distinction between bread and beef, when it comes to use of grain. This answer only talks about beef.

   4%
5. E

   Unclear Impact2% picked this

   The vast majority of retail grocery outlets purchase the bread they sell from small independent bakers but purchase the meat they sell

   This provides some distinction between bread and beef, but the distinction is that bread is bought from smaller bakers and meat is bought from larger operations. How does the size of the supplier explain why the rising price of grain would affect one product more than the other? If anything, we'd expect a larger supplier to have a bigger cushion for absorbing expenses (the bigger the scale of your business, the better you can withstand declining margins for a given product). So if we tried to read too much into this, it would seem to go the opposite direction of what we're trying to explain, because we would think that beef (coming from a larger operation) would be more resistant to changes in price. But it's too strained a connection no matter what to think that the size of the company that bread or beef is purchased from will explain such a drastic difference in terms of how much a doubling in the price of grain will affect the price of the product.

   2%