60. The following appeared in a letter from a firm providing investmentadvice for a client.
"Most homes in the northeastern United States, where winters aretypically cold, have traditionally used oil as their major fuel for heating.Last heating season that region experienced 90 days with below-normaltemperatures, and climate forecasters predict that this weather pattern willcontinue for several more years. Furthermore, many new homes are being built inthe region in response to recent population growth. Because of these trends, wepredict an increased demand for heating oil and recommend investment inConsolidated Industries, one of whose major business operations is the retailsale of home heating oil."
Write a response in which you examine the stated and/or unstatedassumptions of the argument. Be sure to explain how the argument depends onthese assumptions and what the implications are for the argument if theassumptions prove unwarranted.
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The argument recommends investment in Consolidated Industries innortheastern United States, based on the premise that the demand for heatingoil is increasing as the winters in several coming years are predicted to belong and colder than normal and the population is growing. While there might bebusiness opportunity for retail sales of home heating oil in those cities, theproposal fails to provide cogent and persuasive argument, because it lies on anumber of ramshackle assumptions for which no evidence has been given.
One of the reasons that lead to an increase in the demand for heating oil,according to the argument, is the predicted long and colder winters infollowing years. Nevertheless, the author wrongly perceives the prediction asaccurate. Confined to the contemporary meteorological technology, climateforecast is unlikely to be precise. Instead of a certainty, a probability isreported, which the author fail to note. If the probability of such long andcolder weather pattern continuing for several more years is only 5% or 10%, wecan hardly expect the demand for oil to hike. On the other hand, a 90%probability can probably result in a higher demand for heating oil.
Another premise, considering the recent population growth and new homes inthe region, the author concludes that the needs for heating oil will rise byassuming that new homes are also heated by oil. Nevertheless, as a traditionalfuel for heating, oil might be outmoded for new houses. Advanced technology andfuel may have been adopted for heating, such as water looping or electricity,which is cheaper, more efficient and energy-saving. In this case, a boom of demand is unlikely to occur. Moreover, if people usingtraditional oil as their major fuel switch to the new technologyfor heating due to its high efficiency, the demand is going to shrink rather than rise.
Moreover, the author predicted a profit for the Consolidated Industries,whose major business operations is the retail sales, with a increased demandfor heating oil, by assuming that people in the northeastern cities often purchasefuel from retailers. Nonetheless, they probably subscribe fuels from big energycompanies or fuel contractors, which seems to be more convenient. If it istrue, the sales will be limited to small quantity and the revenue may welloutweigh the costs, leading the investment to an experience of failure.
In sum, the argument is rift with holes and shaky assumptions. If theauthor provides a high probability of the long and cold winter maintaining inthe following years, exclude the possibility of the use as substitutes forheating and ensure that the households prefer to purchases fuels fromretailers, the argument will be greatly strengthened. Devoid of the additionalevidence mentioned above, we should be wary about accepting the recommendationof the argument. Otherwise, we will probably fail in our business. |