Discussion Topic

# Determining the method of reasoning (inductive or deductive) used to conclude that an item always provides a good profit for stores based on its cost of goods, labor, and sales price

Summary:

To determine whether the reasoning is inductive or deductive, consider if the conclusion generalizes from specific observations (inductive) or derives logically from general principles (deductive). If the conclusion that an item always provides a good profit is based on past data of costs, labor, and sales price, it is inductive reasoning. If it follows from a general rule about profit margins, it is deductive reasoning.

In manufacturing an item, the cost of goods was \$1.00, the cost of labor to manufacture the item was \$0.50, and the sales price of the item was \$5.00. Therefore, the item always provides a good profit for the stores selling it. Which method of reasoning has been used here (inductive or deductive), and why do you think so?

This is an example of inductive reasoning. Inductive reasoning occurs when certain premises support a probable conclusion. This differs from deductive reasoning, in which the premises support a certain conclusion (i.e. if the premises are true, the conclusion must also be true).

Here, we have two certain premises. First, the total cost of goods and labor to manufacture an item was \$1.50. Second, the sales price of the item was \$5.00. The conclusion is that the item always provides a good profit for the stores selling it. Since the gross profit based on these figures is \$3.50, more than twice the total manufacturing cost, this is probably true. However, it is not certainly true. There may be many other factors of which we are not aware that could complicate the issue. Perhaps the wholesaler sells the item to stores at a price considerably higher than the manufacturing cost. Perhaps the stores are in fashionable locations and pay very high rent, so a profit of \$3.50 per item is not enough to keep them trading. Perhaps they simply do not sell any of the items, so they provide no profit at all, regardless of the price. The conclusion is not certain even if the premises are, meaning that the reasoning is inductive.

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The cost of goods was \$1.00. The cost of labor to manufacture the item was \$0.50. The sales price of the item was \$5.00. So, the item always provides a good profit for the stores selling it. Which method of reasoning (inductive or deductive) has been used here, and why do you think so?

This is an example of inductive reasoning. Inductive reasoning is employed when certain premises are used to reach a probable, but not certain, conclusion. This is in contrast to deductive reasoning, where a theory is tested by applying it to specific incidents or examples to yield a certain conclusion.

In this case, we are given three certainties with which to work: the cost of goods, the cost of labor, and the final sale price. Given that the total cost of goods and labor for the item is \$1.50 and the item is sold for more that three times this amount, it seems reasonable to conclude that the item provides a good profit for the stores selling it.

However, this conclusion is not certain. We do not, for instance, know the wholesale price of the item. It is possible that the stores purchase it for a price considerably higher than the cost of goods and labor. We are also ignorant of the stores' overheads. Perhaps an upscale store with high rent and other costs requires a bigger margin to make a profit.

Finally, it is possible that the store simply does not sell any of the items, in which case it would make no profit at all. Factors such as these prevent the conclusion from being certain, meaning that the reasoning must necessarily be inductive.