soumya170293 wrote:
The Calex Telecommunications Company is planning to introduce cellular telephone service into isolated coastal areas of Caladia, a move which will require considerable investment. However, the only significant economic activity in these areas is small-scale coffee farming, and none of the coffee farmers make enough money to afford the monthly service fees that Calex would have to charge to make a profit. Nevertheless, Calex contends that making the service available to these farmers will be profitable.
Which of the following, if true, provides the strongest support for Calex's contention?
(A) Currently, Caladian coffee farmers are forced to sell their coffee to local buyers at whatever price those buyers choose to pay because the farmers are unable to remain in contact with outside buyers who generally offer higher prices.
(B) In the coastal areas of Caladia where Calex proposes to introduce cellular telephone service, there is currently no fixed-line telephone service because fixed-line companies do not believe that they could recoup their investment.
(C) A cellular telephone company can break even with a considerably smaller number of subscribers than a fixed-line company can, even in areas such as the Caladian coast, where there is no difficult terrain to drive up the costs of installing fixed lines.
(D) Calex bases its monthly fees for cellular telephone service in a given region partly on the cost of installing the necessary equipment to provide the service there.
(E) Calex has for years made a profit on cellular telephone service in Caladia's capital city, which is not far from the coastal region
source is Gmat Prep
OA is A.
Kindly Explain it??
My two cents (bold for what I considered important)
Conclusion here is that Calex will be profitable in area, even though no one can can afford the prices that must be charged to breakeven. Therefore, there must either be 1)Some outside factor to profitability (such as a government subsidiary) that would allow Calex to still make money AN/OR 2) the breakeven point is eventually me by the populace, wither by it going down or the pop. paying up.
A) New cell network would allow farmers to commicate with outside consumers and get more $ for their product. This adheres to situation 2 above (consumers make more money and pay up).
B) Fixed line companies is a random throw in by the GMAT to try to throw you off. You want to know why Calex, a cell company, will be profitable. Just because a fixed line isn't profitable you can't assume a cell won't be either.
C) Once again, fixed line is meant to throw you off. Additionally, even if we know that cell has a lower breakeven than fixed it was already established that no one in the area makes enough to subscribe anyway.
D) The cost of installing equipment will "require considerable investment" so the price charged will be high. This means that none of the coffee farmers could actually subscribe. Weakens conclusion.
E) Geographic proximity does not indicate that the profitability will be the same. Everyone in the city may be rich and subscribe to Calex.
Took me ~2:10 seconds to solve this one considering I ran through the answers twice and didn't like any of them. My mistake was not reading all answers fully, on my third go around I noticed the final part of A "ho generally offer higher prices" would provide information affecting the coffee makers wealth, which would affect Calex's profitability.
Hope this helps.
PA