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In Argonia the average rate drivers pay for car accident

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In Argonia the average rate drivers pay for car accident [#permalink] New post 02 Oct 2012, 07:47
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Question Stats:

67% (02:35) correct 33% (01:48) wrong based on 253 sessions
In Argonia the average rate drivers pay for car accident insurance is regulated to allow insurance companies to make a reasonable profit. Under the regulations, the rate any individual driver pays never depends on the actual distance driven by that driver each year. Therefore, Argonians who drive less than average partially subsidize the insurance of those who drive more than average.
  
The conclusion above would be properly drawn if it were also true that in Argonia
  
(A) the average accident insurance rate for all drivers rises whenever a substantial number of new drivers buy insurance
(B) the average cost to insurance companies of insuring drivers who drive less than the annual average is less than the average cost of insuring drivers who drive more than the annual average
(C) the lower the age of a driver, the higher the insurance rate paid by that driver
(D) Insurance company profits would rise substantially if drivers were classified in terms of the actual number of miles they drive each year
(E) Drivers who have caused insurance companies to pay costly claims generally pay insurance rates that are equal to or lower than those paid by other drivers
[Reveal] Spoiler: OA

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Re: In Argonia the average rate [#permalink] New post 02 Oct 2012, 09:15
Well ,I believe its Support the argument Type Question .

Conclusion is - Argonians who drive less than average partially subsidize the insurance of those who drive more than average.

To support this if we prove that they(one who drive less )actually cost less to Insurance - this will further strengthen Argument.i.e more Sound Argument.

This is what
[Reveal] Spoiler:
B
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Re: In Argonia the average rate [#permalink] New post 03 Oct 2012, 22:19
+1B

2 drivers
1 drives 100 km per month other drives 1000km per month

Insurance cost for both = ((1000+100)/2) = 550 per month (Suppose Insurance cost is same as the average number of km driven) = 600 (50 profit)

If only 1 drivers then insurance cost – 100 per month i.e. 150 after profit
If only 2 drivers then insurance cost – 1000 per month i.e. 1050 after profit

We see that the insurance cost gets subsidized for those who drive more by 450. Is not it?

What did I assume in my solution? “Suppose Insurance cost is same as the average number of km driven” i.e. the average cost to insurance companies of insuring drivers who drive less than the annual average is less than the average cost of insuring drivers who drive more than the annual average

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Re: In Argonia the average rate drivers pay for car accident [#permalink] New post 05 Oct 2012, 23:57
Insurance = not based on distance driven
Therefore, those who drive less partially subsize the cost of those who drive more
  
Use the Assumption Negation for (B) the ave. cost of insurance for those who drive less is equal average cost of those who drive more.
The argument will fall apart if this assumption is false. If the cost are just the same, then "partial subsidy" is not going to happen.

(A) the average accident insurance rate for all drivers rises whenever a substantial number of new drivers buy insurance
substantial new drivers causing increase in insurance rate is not anywhere in the argument; no tie to the conclusion

(C) the lower the age of a driver, the higher the insurance rate paid by that driver
age is not relevant to the conclusion

(D) Insurance company profits would rise substantially if drivers were classified in terms of the actual number of miles they drive each year
future prediction is not claimed anywhere in the argument

(E) Drivers who have caused insurance companies to pay costly claims generally pay insurance rates that are equal to or lower than those paid by other drivers
we need an assumption for those who drive less and drive more
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Re: In Argonia the average rate drivers pay for car accident [#permalink] New post 06 Oct 2012, 00:24
In Argonia the average rate drivers pay for car accident insurance is regulated to allow insurance companies to make a reasonable profit. Under the regulations, the rate any individual driver pays never depends on the actual distance driven by that driver each year. Therefore, Argonians who drive less than average partially subsidize the insurance of those who drive more than average.
  
The conclusion above would be properly drawn if it were also true that in Argonia
  
(A) the average accident insurance rate for all drivers rises whenever a substantial number of new drivers buy insurance – IMO POE does not immediately eliminate this. But logically, here, we are discussing about the ones who drive more miles and the ones who drive less. So this statement is not relevant.
(B) the average cost to insurance companies of insuring drivers who drive less than the annual average is less than the average cost of insuring drivers who drive more than the annual average. On hold.
(C) the lower the age of a driver, the higher the insurance rate paid by that driver – Goes out in the the first instance of POE application.
(D) Insurance company profits would rise substantially if drivers were classified in terms of the actual number of miles they drive each year- On hold.
(E) Drivers who have caused insurance companies to pay costly claims generally pay insurance rates that are equal to or lower than those paid by other drivers. Goes out in the the first instance of POE application.

I was stuck between B&D. Chose D instead of B, the OA. In hindsight B looks to support the Argument more directly compared to D, which is generic.
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Re: In Argonia the average rate drivers pay for car accident [#permalink] New post 08 Jul 2014, 01:06
Hello from the GMAT Club VerbalBot!

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Re: In Argonia the average rate drivers pay for car accident   [#permalink] 08 Jul 2014, 01:06
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