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Given below is a statement followed by two possible reasons numbered I and II. Read the statement carefully and decide which of the two explains the event/observation/information given in the statement. Statement - Despite having a highly skilled workforce, Company A has not been profitable for the past three years. I. The company is located in a region where the cost of functioning is extremely high. II. The CEO of Company A is a well-known philanthropist.
Only I is a possible reason.
Only II is a possible reason.
Neither I nor II is a possible reason.
Both I and II are possible reasons.
Only I is a possible reason.
Identify the factor that directly affects a company's profitability (financial statement balance: Revenue - Expenses = Profit).
Identify the factor that directly affects a company's profitability (financial statement balance: Revenue - Expenses = Profit).
Analyze the Core Issue
The statement highlights a lack of profitability. Profitability is a financial outcome defined by Income minus Expenses.
Evaluate Reason I
If the 'cost of functioning is extremely high', expenses rise, which directly eats into the profit margin, explaining why the company is not profitable despite having a skilled workforce.
Evaluate Reason II
The CEO being a well-known philanthropist is a personal trait and does not have a direct, logical causal link to the company's financial profit/loss statement.
II is incorrect because the CEO's personal character (philanthropy) does not impact business expenses or revenue, whereas I directly links to financial insolvency.
A is correct because high operating costs directly impact the bottom line, explaining why a company might struggle to achieve profitability despite high-quality labor.
In Critical Reasoning, always isolate the variables mentioned in the statement (e.g., profit) and look for a direct causal bridge to that variable in the options.
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