A recent spate of launching and operating mishaps with television sate

Question

A recent spate of launching and operating mishaps with television satellites led to a corresponding surge in claims against companies underwriting satellite insurance. As a result, insurance premiums shot up, making satellites more expensive to launch and operate. This, in turn, has added to the pressure to squeeze more performance out of currently operating satellites.

Which of the following, if true, taken together with the information above, best supports the conclusion that the cost of television satellites will continue to increase?

(A) Since the risk to insurers of satellites is spread over relatively few units, insurance premiums are necessarily very high.

(B) When satellites reach orbit and then fail, the causes of failure are generally impossible to pinpoint with confidence.

(C) The greater the performance demands placed on satellites, the more frequently those satellites break down.

(D) Most satellites are produced in such small numbers that no economies of scale can be realized.

(E) Since many satellites are built by unwieldy international consortia, inefficiencies are inevitable.

IanStewart · Accepted Answer

The mishaps have already led to an increase in the cost of satellites. This has led to the current situation: 'pressure to squeeze more performance out of currently operating satellites.' Why would the costs go up even further? If squeezing more performance out of current satellites is likely to be lead to further increases in costs. Of the answer choices, B is irrelevant, A, D and E describe why satellites should be expensive, not why costs should increase. Only C describes why 'squeezing more performance out of currently operating satellites' is likely to lead to satellite breakdown, which, as the question stem has established, leads to an increase in costs.

egmat · Answer

Hi,

It doesn't really matter which inefficiencies we are talking about here.

The keyword in the conclusion is "increasing" - that the costs will continue to increase.

Option E does not say that the inefficiencies will continue to rise. It just says some inefficiencies will remain - so what - it does not mean that the costs will INCREASE. It just means that costs must remain high.

Thanks,
Chiranjeev

whamberto · Answer

I agree with the answer C here:

The conclusion is:  The cost of television satellites will continue to rise

In this case, the conclusion is actually in the question stem.

A. This only describes why the price of the satellites is high. It does not explain why the cost will continue to increase.

B. I felt that the cause of failure was irrelevant in this case because it doesn't explain why the costs of the satellites would increase.

C. This answer choice correctly explains the reason why costs will continue to increase - since the currently operating satellites would be squeezed for more performance, this also means that they are also very likely to break down quicker. Therefore, the cost of maintenance and returning them back to operation would increase the costs.

D. This answer choice only explains the production of the satellites itself. It could explain why the cost of the satellite is high, but not why the costs would continually increase.

E. Although the satellites are inefficient, this would not explain why the costs would continually increase.

12bhang · Answer

Though , choice C is the correct answer here. What i do not understand is how Choice E is irrelevant.

the satellites are built by unwieldy manufacturers,so inefficiencies are inevitable.

Now , it is not clear which inefficiencies the choice refers to.

It could be inefficiency in operation,leading to higher failures- in this case increasing costs.
It could be innefficient construction-not increasing costs.

vnigam21 · Answer

The satellites are caught in a vicious cycle: mishaps led to more claims, more claims led to higher premiums, higher premiums made satellite use more expensive, higher expenses led to higher demands on satellite performance. Choice C closes the "circle" of issues here because, if satellites are going to fail more due to high performance demands, then there will be more claims, and the whole thing will start all over again.

vnigam21 · Answer

Can someone explain options A, D and E in more detail.

Following is my understanding for these 3 options respectively,

A. Since the risk to insurers of satellites is spread over relatively few units, insurance premiums are necessarily very high.  
 As the insurance premiums are very high, satellites would be more expensive to launch and operate. But it does not support or provide any evidence to support the conclusion that the cost of satellites would continue to increase.

D. Most satellites are produced in such small numbers that no economies of scale can be realized.  
 First of all, meaning of economies of scale (As I was not aware of this meaning earlier), 
 Economies of scale  are the reduction in the per unit cost of production as the volume of production increases. In other words, the cost per unit of production decreases as volume of product increases.
 So, this option basically means that as satellites are produced in such small numbers that is the overall volume of production is so less that the cost per unit of production is still high. That is the satellites are still expensive. But this option does not cater to the conclusion that why the cost of satellites will continue to increase. Thus, this option statement is incorrect.
 
 E. Since many satellites are built by unwieldy international consortia, inefficiencies are inevitable. 
 As per this option statement, inefficiencies are inevitable means the mishaps will still occur and claims will increase with higher insurance premiums thus more expensive satellites. But this option also fails to explain why the cost of satellites will continue to increase. 
 What do we actually mean in option E, when we mention unwieldy international consortia and does 'inefficiencies are inevitable' CORRELATES to 'mishaps will not stop happening'?

mikemcgarry   chiranjeev

peanuts · Answer

A recent spate of launching and operating mishaps with television satellites led to a corresponding surge in claims against companies underwriting satellite insurance. As a result, insurance premiums shot up, making satellites more expensive to launch and operate. This, in turn, has added to the pressure to squeeze more performance out of currently operating satellites.

Which of the following, if true, taken together with the information above, best supports the conclusion that the cost of television satellites will continue to increase?

In the argument, the increase in insurance is already there. So, to strengthen the conclusion that the cost of TV satellites will continue to increase we should somehow add the the cost to operate the satellites also increases. This increase should be linked with the increase demand in performance out of currently operating satellites.

(A) Since the risk to insurers of satellites is spread over relatively few units, insurance premiums are necessarily very high.  This answer talks only about insurance aspect, nothing about cost to operate the equipment

(B) When satellites reach orbit and then fail, the causes of failure are generally impossible to pinpoint with confidence.  so what?

(C) The greater the performance demands placed on satellites, the more frequently those satellites break down.  Yes. More demand, more breakdown --> higher need for replacement --> greater cost

(D) Most satellites are produced in such small numbers that no economies of scale can be realized.  why should we care about economies of scale?

(E) Since many satellites are built by unwieldy international consortia, inefficiencies are inevitable.  Inefficiency in building satellites doesn't not means higher operating cost

vyom001 · Answer

Hello Experts,
Can you please break down the question stem and explain why B and E are wrong.

GMATNinja · Answer

The right answer should support the conclusion that "the cost of television satellites will continue to increase." So how does the passage support this conclusion?

Let's break down the logic of the passage:

A recent spate of mishaps with satellites has led to a surge in claims.   This surge in claims has led to an increase in insurance premiums.   This increase in premiums will pressure satellite companies to "squeeze more performance out of currently operating satellites."

But why would this cause the  cost of satellites  to continue to  increase ?

Well, if squeezing more performance somehow leads to more mishaps, that would theoretically lead to higher premiums. This would lead in turn to increased pressure to "squeeze more performance" from satellites, which would lead to more mishaps, which would lead to higher premiums, and so on. But notice that this depends on assuming that "squeezing more performance" leads to more mishaps.

Let's look at (B) now:

It's hard to know what conclusion to draw from this information. If you  could  pinpoint the causes of failure, would that help companies to prevent future failures? Possibly. But that would require a few assumptions we don't want to make.

But even if we made those assumptions, the fact "the causes of failure are generally impossible to pinpoint" wouldn't support the idea that the "cost of television satellites will continue to  increase ." We're looking for a reason that costs will keep going up. But the fact that causes of failure are hard to predict doesn't support the idea that costs will  increase.

Overall, (B) does suggest a barrier that people may face when trying analyze (and possibly address) the causes of satellite failure. But that wouldn't support the idea that the cost of television satellites will CONTINUE to increase. So we can eliminate (B).

Let's look at (E):

What effect do inefficiencies have on the cost of television satellites? While we could speculate, we don't really know. On top of that, the simple fact that inefficiencies exist  couldn't  explain an  increase  in the cost of satellites, even if it did somehow explain why satellites are generally expensive.

Since the correct answer should strengthen the conclusion that the cost of satellites will "continue to  increase ," (E) won't help. Eliminate (E).

I hope that helps!

Sarika101 · Answer

KarishmaB

Can you please help me understand the meaning of option A?

KarishmaB · Answer

How does the insurance industry work?

They take a little money from many people and then support the few who claim damage. For example, insurance against floods will be taken by many many people but very few will actually face that calamity. So the company needs to pay damages to those few only. 
So risk is spread over many people. So the insurance premium to be paid by each person buying this insurance is low.

(A) Since the risk to insurers of satellites is spread over relatively few units, insurance premiums are necessarily very high.

But what if few people are buying? Then the risk is spread over few only. Then the company needs to charge high premium to cover its risk of large payout to someone facing damage and claiming compensation from the company. 
This is what this option means.

stackskillz · Answer

Conc:  The cost of television satellites will continue to increase.

(A)  Since the risk to insurers of satellites is spread over relatively few units, insurance premiums are necessarily very high -  This would explain the reason why insurance premiums are high, thereby leadinng to the increased cost of the TV satellites. However, this doesn't explain why the cost will keep increasing in the future.  Drop

(B)  When satellites reach orbit and then fail, the causes of failure are generally impossible to pinpoint with confidence  - It can be fairly assumed that this is the inevitable end for satellites. Each satellite could have different reasons for failure. Knowing the exact reason for failure doesn't help us in understanding why the cost of television satellites as a whole, possibly across all operators, will continue to increase.  Drop

(C)  The greater the performance demands placed on satellites, the more frequently those satellites break down  - This explains one possible way in which the satellites will keep getting expensive. The higher the performance demands, the more frequently the satellites will breakdown, leading to increase in the insurance premiumns and thereby increasing satellite costs and the vicious cycle goes on and on.  Keep

(D)  Most satellites are produced in such small numbers that no economies of scale can be realized -  This would probably justify why the satellites are costly in the first place, but not the continuous increase predicted.  Drop

(E)  Since many satellites are built by unwieldy international consortia, inefficiencies are inevitable.  Again, this sounds like a pre-existing condition, so why should this lead to a change in the prices.  Drop

ManjunathKolageri · Answer

Option C is the correct answer, since the demands for greater performance is placed on satellites and thus increase in failure of those satellites.Further leading in increase in insurance premium on those satellites and therefore subsequently increasing the cost of launching those satellites

agrasan · Answer

Hi  GMATNinja ,

I wanted to understand how can we eliminate Option D properly and also how to evaluate Option C.

My thinking is - Option D explains why price won't decrease by bringing in less likelihood of economies of scale but at the same time, this should be a one-time phenomenon, it doesn't explain why costs will continue to increase.
For eg: A lesser likelihood of economies of scale for a satellite X would only increase $1000 at a single time during production, we can't say that EOS will lead to a $500 increase in price every quarter for X.

Also, I rejected Option C in the first place as I didn't understand the logic of how the greater the performance demands placed on satellites, the more frequently those satellites break down. I couldn't connect this logically with real-world science as in how can first event lead to the second event.
For options like this, is it recommended to just assimilate what's written in the option and then evaluate?

GMATNinja · Answer

Let's start with the problem with (D), which says that too few satellites will be produced to achieve economies of scale.

Well, economies of scale could, in theory, bring costs down, but that isn't what we're trying to strengthen. We're trying to strengthen the notion that costs will go  up . Failure to achieve economies of scale wouldn't increases costs, so (D) is out.

As for (C), we don't need any real-world science. If an answer choice says that increased performance demands lead to more breakdowns, we have to take that at face value. (And while we have to take their word for it, it also makes a kind of logical sense. Greater performance demands on any piece of machinery -- whether it's something going faster or being used for longer periods -- would seem to put more stress on its parts, right?)

The takeaway: answer choices can be wrong, but they can't lie. So if you're trying to strengthen an argument, don't ask yourself if the answer choice is true. Ask yourself, "assuming this is true, would it make the conclusion more likely?"

I hope that helps!

agrasan · Answer

Thanks,  GMATNinja  for the explanation.
Understood the reasoning behind option C.

I have a follow-up question on option D, how would failure to economies of scale not increase the costs? Failure of EOS would lead to an increase in costs, right? If yes, then how doesn't option D strengthen the argument?

GMATNinja · Answer

The passage tells us why satellites are  already  expensive to launch and operate. Then, the question asks us to figure out why the costs will continue to rise  in the future . (C) gives us exactly that -- because of the increased demands on satellites, those satellites will break down more often. That's going to be expensive when it occurs in the future.

(D), on the other hand, doesn't give us a reason why costs will go up in the future. Satellites are  already  produced in small numbers without economies of scale. If that continues to be the case, then the costs will just continue on at that annoyingly high price point, rather than increasing  even more  as time goes on.

So, (D) gives us a reason why satellites are expensive, but doesn't explain why they will be more expensive in the future than they are now.

Eliminate (D).

I hope that helps!

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