A certain telephone company practices peakload pricing

Question

A certain telephone company practices â€œpeakload pricing,â€

gayathri · Answer

OA is B

ruhi · Answer

Can someone provide some explanations here?? Im trying to work out some answer choice using Maths .. But its not working. :oops:

gmat1obsessed · Answer

C...........

I was inclined to A as well...


C says that
The higher rate for peak-hour calls more than compensates for the fewer minutes of peak-hour conversation.

people talk fewer minutes during peak hour ....... even though charge is high at peak hours the less sales is generated ......compared to non-peak hour calls...


Declined A because Avg length of call does not tell anything about the revenue.Because it could be that even though the avg call length is more in non-peak hours but the number of calls could be less...

hope it makes sense...........

gmat1obsessed · Answer

Pls. explain could not figure out B's logic 

b) The company billed customers for more minutes of non-peak hour conversation than minutes of peak-hour conversation. 

Simply put --there are more minutes for non-peak than peak.....how come we determine the revenue of non-peak is more even though charge for peak is higher.................

gayathri · Answer

This is from PR online CAT & this is their explanation

A: Considering the â€œaverage lengthâ€

ruhi · Answer

I dont agree with the OA.. Even though there is a greater volume, the revenue can always be low.

for example, let the rate be 5 units for non peak and 10 units for peak hours and the number of minutes be 20 and 10 respectively. In this case, the revenue earned is same. If it becomes, 30 and 20 mins respectively, then the revenue is 150 and 200 units... hence the revenue of peak hours is more....

venksune · Answer

I think B is fine, though A is close...here's my 2 cents..

If I am billed by this phone company and I have made  5 non-peak calls  totalling  20  minutes, then the  avg  time per call =  4 minutes . Similarly if I have made calls during  peak time  and have made  5 peak calls  totalling  10 minutes , the  avg  time spent is  2  minutes. right.

Now, assume that  non-peak is $1/min  and  peak is $2/min . The company has billed me  20*1 = 20 , PLUS  10*2 =20 ;  total of $40 .

Note that revenue from both off peak and peak is the same here - But the number of minutes and the avg no. of minutes are different. 

Guess what, if I would've done  40 minutes non-peak  and  10 times  the  avg  is  still 4 minutes . Similarly if I would've spoken  4 minutes  during  peak  time and  only twice , the  avg  is the  same(2 minutes ). But look at the revenue base..which is 40*1= $40  PLUS  4*2=$8   totalling to 48 . The company has clearly had more revenue from non-peak.

So, avg will not help, total minutes will only determine the actual revenue.

ruhi · Answer

WOW

Thats a superb explanation Venksune :musband

gayathri · Answer

good explanation venksune! Thanks.

praveen_rao7 · Answer

B makes most sense. Good problem. Thanks for posting Gayathri

A certain telephone company practices peakload pricing

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