The following appeared as part of an annual report sent to stockholders by Olympic Foods, a processor of frozen foods: “Over time, the costs of processing go down because as organizations learn how to do things better, they become more efficient. In color film processing, for example, the cost of a 3-by-5-inch print fell from 50 cents for five-day service in 1970 to 20 cents for one-day service in 1984. The same principle applies to the processing of food. And since Olympic Foods will soon celebrate its 25th birthday, we can expect that our long experience will enable us to minimize costs and thus maximize profits.” Discuss how well reasoned . . . etc. ------------------------------------------------------------------------------------------
In this argument, the author expects that long experience of Olympic Foods, a processor of frozen foods, will enable the company to minimize costs and thus maximize profits. The author points out that the costs of processing go down over time because organizations become more efficient, in support of this argument, the author provides an example of the significant decrease in color film processing cost and large increase in the efficiency of the print service over 14 years. When we skim through this argument, we may find it appealling, but after careful analysis, we can easily identify several logic flaws that render the author's line of reasoning questionable. First, the author attributes the decrease in costs of processing to the efficiency increase of these processing organizations, however, there maybe other relevant factors, for example, the prices of materials used in processing decreased and led to the decrease in processing costs. To strengthen this conclusion, the author need to consider and rule out other factors relevant to the processing costs. Second, the example of decrease in color film processing costs does not provide sufficient evidence for the expectation of decrease in food processing costs, because factors influencing the cost of film processing are different from those impacting food processing, for example, the decrease in print oil price could lead to the decrease in the cost of film processing but it won't have any impact on the food processing cost, moreover, the price of chemical addictives used in the food processing will impact the food processing costs but won't influence the film processing costs. Thus, it is inconvincing to make analogy between the decrease in the cost of film processing and that of food processing. In other words, without taking into accout of other relevant factors, it's premature for the author to expect cost minimization over time based on the mere fact that color film processing costs decreased over the past 14 years. Third, profits are influenced by both revenues and costs, the decrease in costs does not necessarily result in profit increase because the revenue could decrease at the same time, maybe in larger scale. In this case, if the revenue of Olympic Foods decrease more than its costs, it will still produce a decrease in profits. So the author should also consider other profit relevant factors. In summary, unless all the relevant factors are taken into consideration, it would be inconvincing for the author to make the analogy and justify the conclusion.