Domino Grace is a financial services company. It has started using scientific principles of management to analyze the compensation system for its financial advisors. Under the current system, revenue goals are based on the financial advisors' performances in the previous year. Domino Grace managers believe that the financial advisors could generate much more revenue if they were encouraged to offer derivatives, a complex but potentially profitable investment product. Suppose that investments in derivatives generated $5 million of revenue for Domino Grace during this calendar year. The managers who proposed offering derivatives contend that this statistic demonstrates that offering derivatives increased Domino Grace revenues this calendar year by $5 million. Which of the following points out a flaw in this argument?
A) It assumes that offering derivatives could not have generated less than $5 million.
B) It claims without warrant that offering derivatives will generate high revenues in future years.
C) It fails to demonstrate that offering derivatives generated more money than any alternative would generate.
D) It fails to account for the revenues that could have been generated by alternative uses of the resources that went into offering derivatives.
E) It ignores the possibility that some investors lost money by investing in derivatives through Domino Grace.

Question

Quizplus · Accepted Answer

The argument assumes that the $5 million revenue from derivatives is a net gain without considering what other revenues might have been generated if the resources used for derivatives were allocated differently. This oversight fails to provide a complete picture of the financial impact of offering derivatives.

Domino Grace Is a Financial Services Company