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Whichof the following most logically completes the passage below? One name-brandcereal manufacturer is about to reduce wholesale prices for its cereals by 20percent because consumers have been switching from its cereals to cheaper storebrands. The success of this strategy relies on the assumption that supermarketswill pass on all of the savings by lowering the prices they charge consumersfor the manufacturer's cereals. Although supermarkets usually pass on suchsavings, in this case it is likely that supermarkets not do sobecause________________.
A. several other name-brand cerealmanufacturers are about to reduce the wholesale prices of their cereals
B. the average price per box ofname-brand cereals has increased significantly in the last 10 years
C. total annual sales ofcereal—including both name-brand and store-brand cereals—have increased overthe past 10 years
D. supermarkets make far moreprofit on sales of store-brand cereals than on sales of name-brand cereals
E. the current prices of themanufacturer's cereals are comparable to the prices of name-brand cerealsproduced by other cereal manufacturers
Why would supermarkets beunlikely to pass on the savings by lowering the price of the manufacturer'scereals? Consumers have been switching from the manufacturer's cereals tocheaper store brands. The manufacturer wants to reverse this trend by reducingits cereals’ prices for shoppers. We are told that usually supermarkets do passon savings from lowered wholesale prices. Therefore, this must usually be intheir interest. Since supermarkets are businesses, profit motives are likely toexplain their decisions. What profit motive might deter the supermarkets fromlowering prices in this specific situation?
A. If other name-brand cerealmanufacturers also reduce their wholesale prices, the supermarkets could simplypass on the savings by lowering the prices on those cereals as well. Because ofincreased affordability to consumers, total cereal sales may increase withoutreducing the supermarkets’ profits on each box of cereal sold.
B. If prices of name-brand cerealshave increased, supermarkets might have even more reason to pass on the savingsfrom reduced wholesale prices in order to increase sales.
C. Even if cereal sales have beenincreasing, supermarkets might be happy for the opportunity to increase saleseven more by lowering the prices on the manufacturer's cereals without reducingtheir profits on each box sold.
D. Correct. If supermarkets make more profits from store-brand cereals thanfrom name-brand cereals, they have a profit motive not to encourage shoppers toswitch to a name-brand cereal by lowering its price.
E. If supermarkets lower prices ofthe manufacturer's cereals below those of other name-brand cereals, thenshoppers may switch brands, but this would not reduce the supermarkets‘ totalprofits.
The correct answer is D.
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