Question

The automobile industry in​ Rhizo, a small developing​ country, has a monopolistic market structure. Crimson​ Inc., the only player in this​ industry, has been specializing in the production of hatchback cars for almost five years and earns huge profits by selling them at high prices. The​ company's sales revenue has increased on average by 11 percent annually since it began its operation.​ However, in an attempt to promote​ competition, the government of Rhizo has recently announced tax concessions for new firms willing to enter this industry. The sales team at Crimson forecasts that even if new firms enter the​ market, its sales will still increase by 8.5 percent next year.​ Crimson's CEO, Maria​Dan, therefore feels that the firm need not worry too much about the competition from new players. Roger​ Woods, an industry​analyst, meanwhile claims that Crimson must introduce some variety in its product line to maintain overall profit margins.

Which of the​ following, if​ true, will strengthen​ Roger's view?

A. Crimson has recently appointed Graham​ Jones, a famous soccer​player, as its brand ambassador.
B. Other industries that the government opened up in the past did not attract much foreign direct investment.
C. Crimson enjoys cost advantages over rival firms.
D. An increase in the average family size in recent years has created a demand for bigger cars.
E. Crimson sells 60 percent of its products in the international market.

Answer 1

Answer:

Option D is the correct answer to this question.

Explanation:

An increase in the average family size in recent years has created a demand for bigger cars. Since Roger Woods proposed that Crimson must introduce some variety in its product line to maintain overall profit margins, option D is the only option that suggests a need for adding a new variety to its product line (Bigger Cars), since there is a demand for it already arising from the increase in the average family size.