It is currently 18 Dec 2017, 01:15

### GMAT Club Daily Prep

#### Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.

Customized
for You

we will pick new questions that match your level based on your Timer History

Track
Your Progress

every week, we’ll send you an estimated GMAT score based on your performance

Practice
Pays

we will pick new questions that match your level based on your Timer History

# Events & Promotions

###### Events & Promotions in June
Open Detailed Calendar

# Clearbell Telephone provides slow-dialing (SD) service to

 new topic post reply Question banks Downloads My Bookmarks Reviews Important topics
Author Message
Senior Manager
Joined: 22 May 2006
Posts: 369

Kudos [?]: 155 [0], given: 0

Location: Rancho Palos Verdes
Clearbell Telephone provides slow-dialing (SD) service to [#permalink]

### Show Tags

02 Jul 2006, 21:54
00:00

Difficulty:

(N/A)

Question Stats:

0% (00:00) correct 0% (00:00) wrong based on 3 sessions

### HideShow timer Statistics

Clearbell Telephone provides slow-dialing (SD) service to customers for a low fee, and fast-dialing (FD) service to other customers who pay a somewhat higher fee. FD technology, however, is so efficient that it costs Clearbell substantially less per average call to provide than does SD. Nonetheless, accountants have calculated that Clearbell's profits would drop if it provided FD to all its customers at the current low-fee rate.

Assume that installation costs for FD are insignificant if the customer already has SD service. Which of the following, if true about Clearbell, best explains the results of the accountants' calculation?

(A) The extra revenue collected from customers who pay the high fee is higher than the extra cost of providing SD to customers who pay the low fee.
(B) The low fee was increased by 6 percent last year, whereas the higher fee was not increased last year.
(C) Although 96 percent of customers regard FD service as reliable and more convenient than SD, fewer than 10 percent of them choose to pay the higher fee for FD service.
(D) The company's competitors generally provide business customers with FD service at low-fee rates.
(E) Profits rose slightly each month for the first three months after FD was first offered to customers, then fell slightly each month for the succeeding three months.

can anyone explain this one??
_________________

The only thing that matters is what you believe.

Kudos [?]: 155 [0], given: 0

CEO
Joined: 20 Nov 2005
Posts: 2892

Kudos [?]: 337 [0], given: 0

Schools: Completed at SAID BUSINESS SCHOOL, OXFORD - Class of 2008
Re: CR : FD vs SD [#permalink]

### Show Tags

02 Jul 2006, 22:42
Clearbell Telephone provides slow-dialing (SD) service to customers for a low fee, and fast-dialing (FD) service to other customers who pay a somewhat higher fee. FD technology, however, is so efficient that it costs Clearbell substantially less per average call to provide than does SD. Nonetheless, accountants have calculated that Clearbell's profits would drop if it provided FD to all its customers at the current low-fee rate.

Assume that installation costs for FD are insignificant if the customer already has SD service. Which of the following, if true about Clearbell, best explains the results of the accountants' calculation?

(A) The extra revenue collected from customers who pay the high fee is higher than the extra cost of providing SD to customers who pay the low fee.

=======> BINGO!!!!! This is the answer. This means extra cost of maintaining the SD is compensated by the higher fee of FD plus they are also getting some profit after compensating the SD. So moving everybody to SD will be a loss.

(B) The low fee was increased by 6 percent last year, whereas the higher fee was not increased last year.

=======> This does not mean that putting everybody on the SD will be a loss.

(C) Although 96 percent of customers regard FD service as reliable and more convenient than SD, fewer than 10 percent of them choose to pay the higher fee for FD service.

=======> Out of scope. We are not concerned about the reliability.

(D) The company's competitors generally provide business customers with FD service at low-fee rates.

=======> Out of scope. To hell with competition.

(E) Profits rose slightly each month for the first three months after FD was first offered to customers, then fell slightly each month for the succeeding three months.

=======> This is the result. We want the reason.

_________________

SAID BUSINESS SCHOOL, OXFORD - MBA CLASS OF 2008

Kudos [?]: 337 [0], given: 0

SVP
Joined: 30 Mar 2006
Posts: 1728

Kudos [?]: 103 [0], given: 0

Re: CR : FD vs SD [#permalink]

### Show Tags

03 Jul 2006, 00:18
ps_dahiya wrote:
Clearbell Telephone provides slow-dialing (SD) service to customers for a low fee, and fast-dialing (FD) service to other customers who pay a somewhat higher fee. FD technology, however, is so efficient that it costs Clearbell substantially less per average call to provide than does SD. Nonetheless, accountants have calculated that Clearbell's profits would drop if it provided FD to all its customers at the current low-fee rate.

Assume that installation costs for FD are insignificant if the customer already has SD service. Which of the following, if true about Clearbell, best explains the results of the accountants' calculation?

(A) The extra revenue collected from customers who pay the high fee is higher than the extra cost of providing SD to customers who pay the low fee.

=======> BINGO!!!!! This is the answer. This means extra cost of maintaining the SD is compensated by the higher fee of FD plus they are also getting some profit after compensating the SD. So moving everybody to SD will be a loss.

(B) The low fee was increased by 6 percent last year, whereas the higher fee was not increased last year.

=======> This does not mean that putting everybody on the SD will be a loss.

(C) Although 96 percent of customers regard FD service as reliable and more convenient than SD, fewer than 10 percent of them choose to pay the higher fee for FD service.

=======> Out of scope. We are not concerned about the reliability.

(D) The company's competitors generally provide business customers with FD service at low-fee rates.

=======> Out of scope. To hell with competition.

(E) Profits rose slightly each month for the first three months after FD was first offered to customers, then fell slightly each month for the succeeding three months.

=======> This is the result. We want the reason.

Please see the bolded parts.
The accountants are vary of moving everybody to FD not SD.

I am also inclined towards A.
A states that FD connection yields extra revenue greater than installation of SD service.

Since the question stem says that installation costs for changing SD to FD for existing cutomers is neglible, the revenue gather by existing SD connections will be lost as a result of efficient FD connections, as neither fee will be high nor installation costs are high.

Kudos [?]: 103 [0], given: 0

Intern
Joined: 26 Jun 2006
Posts: 22

Kudos [?]: 1 [0], given: 0

### Show Tags

03 Jul 2006, 00:53
What is the OA?

I am not sure about A; I am pretty lost from what A is trying to say.

Extra revenue from FD > cost of maintenance on SD. So if everyone is switched to FD, the company is only making more money because average per call FD costs less than SD. So it doesn't make sense that switching to FD will lower the profit unless: no customers will choose FD because FD is charged at a higher rate. So if Clearbell only has FD service at a higher rate, customers might as well not use it and Clearbell won't earn any money. As in C it says less than 10% customers will select FD.

So it is like this:
FD cost is \$1 and charges customer at \$6
SD cost is \$2 and charges customer at \$4

lets say right now there are x% of customers using SD and (100-x)% using FD, the profit is (4-2)*x% * Total amount of customers + (6-1) * (100-x)% * Total amount of customers.

If Clearbell switches to FD only, less than 10% of customer will use FD, so the profit is (4-2)*9.99% at maximum., which is definitely smaller than above.

Hence, I chose C.

Kudos [?]: 1 [0], given: 0

CEO
Joined: 20 Nov 2005
Posts: 2892

Kudos [?]: 337 [0], given: 0

Schools: Completed at SAID BUSINESS SCHOOL, OXFORD - Class of 2008
Re: CR : FD vs SD [#permalink]

### Show Tags

03 Jul 2006, 14:35
jaynayak wrote:
ps_dahiya wrote:
Clearbell Telephone provides slow-dialing (SD) service to customers for a low fee, and fast-dialing (FD) service to other customers who pay a somewhat higher fee. FD technology, however, is so efficient that it costs Clearbell substantially less per average call to provide than does SD. Nonetheless, accountants have calculated that Clearbell's profits would drop if it provided FD to all its customers at the current low-fee rate.

Assume that installation costs for FD are insignificant if the customer already has SD service. Which of the following, if true about Clearbell, best explains the results of the accountants' calculation?

(A) The extra revenue collected from customers who pay the high fee is higher than the extra cost of providing SD to customers who pay the low fee.

=======> BINGO!!!!! This is the answer. This means extra cost of maintaining the SD is compensated by the higher fee of FD plus they are also getting some profit after compensating the SD. So moving everybody to SD will be a loss.

(B) The low fee was increased by 6 percent last year, whereas the higher fee was not increased last year.

=======> This does not mean that putting everybody on the SD will be a loss.

(C) Although 96 percent of customers regard FD service as reliable and more convenient than SD, fewer than 10 percent of them choose to pay the higher fee for FD service.

=======> Out of scope. We are not concerned about the reliability.

(D) The company's competitors generally provide business customers with FD service at low-fee rates.

=======> Out of scope. To hell with competition.

(E) Profits rose slightly each month for the first three months after FD was first offered to customers, then fell slightly each month for the succeeding three months.

=======> This is the result. We want the reason.

Please see the bolded parts.
The accountants are vary of moving everybody to FD not SD.

I am also inclined towards A.
A states that FD connection yields extra revenue greater than installation of SD service.

Since the question stem says that installation costs for changing SD to FD for existing cutomers is neglible, the revenue gather by existing SD connections will be lost as a result of efficient FD connections, as neither fee will be high nor installation costs are high.

That was a typo, I mean FD not SD.
_________________

SAID BUSINESS SCHOOL, OXFORD - MBA CLASS OF 2008

Kudos [?]: 337 [0], given: 0

Director
Joined: 26 Sep 2005
Posts: 567

Kudos [?]: 26 [0], given: 0

Location: Munich,Germany

### Show Tags

03 Jul 2006, 18:15
C. tough one.

Kudos [?]: 26 [0], given: 0

Senior Manager
Joined: 22 May 2006
Posts: 369

Kudos [?]: 155 [0], given: 0

Location: Rancho Palos Verdes

### Show Tags

03 Jul 2006, 19:20
OA is "A"

Thanks
_________________

The only thing that matters is what you believe.

Kudos [?]: 155 [0], given: 0

03 Jul 2006, 19:20
Display posts from previous: Sort by

# Clearbell Telephone provides slow-dialing (SD) service to

 new topic post reply Question banks Downloads My Bookmarks Reviews Important topics

Moderators: GMATNinjaTwo, GMATNinja

 Powered by phpBB © phpBB Group | Emoji artwork provided by EmojiOne Kindly note that the GMAT® test is a registered trademark of the Graduate Management Admission Council®, and this site has neither been reviewed nor endorsed by GMAC®.