NIMCET 2025
Average Cost (AC) is defined as the sum of Average Fixed Cost (AFC) and Average Variable Cost (AVC), and dumping is defined as selling a product at a price less than AC but more than AVC. A company in India suddenly found that the demand for its product "ZOOM" has fallen to 60% of the output produced in that financial year. As a result, the company must sell 40% of the produced output in a foreign market. If it decides to "dump" 40% of its output in a neighbouring country (by reducing the price by 20%), what would be the objective of its 'dumping strategy', among the following? (The company has set a profit margin of 10% of AC while fixing the price of its product for sale in India.) (a) To minimize losses, (b) to maximize profits, (c) to contribute to the recovery of fixed costs, (d) to contribute to the recovery of variable costs
Answer (Detailed Solution Below)View answer ▾Hide ▴
Answer: Option C — (a) and (c)
Detailed Solution
The Indian price is 1.1 AC; cutting it by 20 percent gives 0.88 AC, which is below AC, so the foreign sales lose money on full cost and cannot maximise profit: (b) is out.
Because the dumping price is above AVC, each unit sold covers its variable cost and leaves something over towards fixed cost: this minimises the loss (a) and helps recover fixed costs (c).
- is not the objective: any price above AVC already covers the variable cost in full.
Quick tip
: above AVC, below AC
💬 Discussions on this question
Ask a doubt ›Still stuck on this question? Ask our faculty and fellow students — answers appear here.
Ask a doubtMore Critical Reasoning Questions
View all ›- Q1.Which of the following arguments is a "circular argument"?
- Q2.Which of the following will be acceptable for establishing a fact?
- Q3.Cars are safer than planes. Fifty percent of plane accidents result in death, while only one percent of car accidents result in death. Which of the following, if true, would most seriously weaken the argument above?
- Q4.A city enforced an odd-even rule for private cars for two weeks, and air pollution levels fell during that period. The city administration concluded that the odd-even rule reduced pollution. Which of the following, if true, most weakens the administration's conclusion?
- Q5.A company claims that its new fertiliser increases wheat yield, because farms that used it this season produced 20% more wheat than they did last season. Which of the following, if true, most strengthens the company's claim?
More Logical Reasoning Questions
- Q1.Six persons A, B, C, D, E, and F are sitting in a row facing north. B sits third to the left of F. A sits to the immediate right of B. D sits second to the right of F. E sits to the immediate right of A. Who sits at the extreme right end?Linear Arrangement
- Q2.Five friends P, Q, R, S, and T are standing in a row. P is to the left of Q but to the right of T. R is to the right of Q. S is between Q and R. Who is standing in the middle?Linear Arrangement
- Q3.Eight people 1 through 8 sit in a row. 3 sits exactly midway between 1 and 5. 5 sits to the immediate left of 7. 2 sits third to the right of 8. 6 sits to the immediate right of 2. 4 sits between 6 and 7. Who sits second from the left?Linear Arrangement
- Q4.A, B, C, D, and E are five houses in a row from left to right. C is to the right of B and to the left of E. A is to the left of B. D is to the right of E. Which house is in the middle?Linear Arrangement
- Q5.Seven students sit in a row. Priya is second from the right. Raj is third to the left of Priya. Meena is immediately to the right of Raj. Sam is between Meena and Priya. Two students sit to the left of Raj. Who sits at the extreme left?Linear Arrangement
Critical Reasoning — Preparation
This question tests your understanding of Critical Reasoning, a key topic in the Logical Reasoning section. The detailed solution above uses a step-by-step approach to show the reasoning, and where available, a shortcut that helps you solve similar questions in under 90 seconds during the actual exam.
Critical reasoning questions test how well you can analyse a short argument. This topic covers strengthening and weakening an argument, identifying the main point or conclusion of a passage, drawing inferences, finding the flaw in reasoning, and paradox resolution. The most important rule is to stay strictly within the information given and avoid bringing in outside knowledge. Start by identifying the main claim and the evidence offered for it. A strengthening option makes the claim more likely to be true, while a weakening option breaks the link between the evidence and the claim. Extreme words such as "only", "always" and "never" often make an option wrong. The classic statement-based question types, such as statement and assumptions, statement and conclusions and cause and effect, are covered on their own Logical Deductions pages. Practise the critical reasoning questions below. Each solution explains why the correct option works and why the others don't.