Question

Charlie’s Chainsaw Company has reason to believe that one of its models of saw is defective. A recall of all of the saws would cost more than 5 million, and would probably result in a loss in market share over the next quarter because of bad publicity. Still, a recall is the right economic decision. Which of the following, if true, most supports the conclusion above?

• A. Defective chainsaws can seriously injure or even kill the people who use them.
• B. Charlie’s chief rival has recalled two of its products within the past year.
• C. Product recalls often result in a perception by customers that a given product is permanently defective, even after the defect has been remedied.
• D. The stocks of publicly traded companies that announce product recalls often drop upon the announcement, but they generally return to the pre-announcement level within 12 months.
• E. The stocks of publicly traded companies that announce product recalls generally outperform the stock market over the next five years.

Hint:

When evaluating a decision, focus on the fundamental reason for the action (e.g., safety, financial risk) and how supporting evidence aligns with that reason.

Answer 1

The Correct Option is A

Step 1: Understand the conclusion.
The conclusion states that a recall is the right economic decision despite the cost and potential market share loss. To support this conclusion, we need evidence that the benefits of recalling (e.g., safety) outweigh the economic costs.
Step 2: Review the answer choices.
- (A) This option supports the conclusion by emphasizing the potential harm of defective products, making a recall necessary for safety.
- (B) The actions of the rival company are irrelevant to the safety and necessity of a recall.
- (C) This focuses on consumer perception, but does not address the safety concern driving the recall.
- (D) The economic impact of the recall is important, but the safety concern is more pressing for supporting the recall.
- (E) This option discusses stock performance but does not address the core reason for the recall.
Conclusion:
Option (A) is the best answer because it supports the necessity of the recall based on safety concerns.