Local phone companies have monopolies on phone service : GMAT Critical Reasoning (CR)
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# Local phone companies have monopolies on phone service

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Local phone companies have monopolies on phone service [#permalink]

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15 Oct 2005, 12:16
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Local phone companies have monopolies on phone service within their areas. Cable television can be transmitted via the wires that are already in place and owned by the phone companies. Cable television companies argue that if the telephone companies were to offer cable service, these telephone companies would have an unfair advantage, because their cable transmissions could be subsidized by the profits of their monopolies on phone service.

Which of the following, if true, would ease the cable companiesâ€™ fear of unfair competition?
(A) In order to use existing telephone wire, telephone companies would need to modernize their operations, a process so expensive it would virtually wipe out all profit from their monopoly for the foreseeable future.
(B) If a phone company were to offer cable service within a particular area, it would have a monopoly within that area.
(C) The cost of television service, whether provided by cable or telephone companies, scales; that is, the total cost of transmission rises only marginally as more homes are added to the network.
(D) Cable programming that offers more channels is already available through satellite dish, but the initial cost of the dish is extremely high.
(E) Cable television will never be able to compete with the burgeoning video rental industry, especially as more homes now have video cassette recorders than ever did before.

On the basis of the information provided in the passage above, which of the following questions can be answered?
(A) Are phone companies as efficient as cable companies in providing reliable and inexpensive service?
(B) If phone companies were allowed to provide cable service, would they want to do so?
(C) Do the cable companies believe that the local phone companies make a profit on phone service?
(D) Are local phone companies forbidden to offer cable service?
(E) Is it expected that phone companies will have a monopoly on cable service?
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15 Oct 2005, 15:17
1) A

If it is so expensive for the phone companies, they won't be able to subsidize transmission by their profits (as the profit will be wiped out upon modernization)

2) C

Cable companies say "cable transmissions could be subsidized by the profits of their monopolies on phone service"
15 Oct 2005, 15:17
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