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08 May 2021, 09:51
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VatsSaraf
As long as you eliminate four answer choices for strong reasons, then it's ok to have a bit of doubt about the remaining answer choice
.However, there's a slight issue with your analysis of (A): you don't need to assume that people will still choose SD, even if FD is available at the same rate.
The key is whether the high profit from some customers buying expensive FD outweighs the cost-savings of switching everyone to the cheap FD.
Another expert provided a very nice numerical breakdown here, if you'd like to check it out. However, it's unlikely that you'd have enough time to do something like that during the test -- instead, it's best to eliminate four options and then go with the one you haven't eliminated.
I hope that helps!
04 Nov 2022, 00:23
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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.
Gist of the passage: This one is tough to truly understand due to the confusing terminology. However, the passage is saying that the Clearbell is considering to shift all customers (previously SD+FD customers) to FD customers 100% at the rate that is the low rate (corresponding to the rate of SD). Thus, the rate of providing FD has reduced from Old FD price to Old SD price (a negative impact) but all people who had SD service moved to FD service (As the cost of providing FD < cost of providing SD service) so the savings in cost will increase (positive impact).
The combination of these two forces results in overall negative effect which is drop in profits according to the accountants and we have to explain this paradox. We understand that the negative impact above needs to outweigh the positive and any option that explains how will be correct.
A) The first half of the option is talking about the old situation i.e. the revenue the company was getting from the customers who were paying the higher fee for FD. Now that the fee is reduced to low rate (of old SD) this first half revenue represents the decrease in revenue for all the customers that were already FD before and now enjoy a discount rate after the change. This value is higher than the second half of the option i.e. extra cost of providing SD to customers at lower fee (again this is the old situation), this cost represents the savings in cost after the proposed change. As the people who were previously using SD will shift to FD, the extra cost of providing SD (as in second half) will be gone once they shift to FD (the positive impact talked about above in the gist). Thus, this cost is actually the savings in the proposed. This option can be now worded in a different way representing the same thing, as follows:
decrease in revenue from the customers who shifted from old FD rates to new FD rates is higher than the savings that the company will get from providing all customers FD by replacing SD service. Basically, the negative effect of the change outweighs the positive effect in this option, thus explaining the drop in profits and hence the correct answer.
(this option does a great job of using terminology and phrases that are counterintuitive and in a way act as variables to the actual meaning behind them, the use of words revenue and cost are distracting here because they actually represent the opposite in a logical sense)
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.
Gist of the passage: This one is tough to truly understand due to the confusing terminology. However, the passage is saying that the Clearbell is considering to shift all customers (previously SD+FD customers) to FD customers 100% at the rate that is the low rate (corresponding to the rate of SD). Thus, the rate of providing FD has reduced from Old FD price to Old SD price (a negative impact) but all people who had SD service moved to FD service (As the cost of providing FD < cost of providing SD service) so the savings in cost will increase (positive impact).
The combination of these two forces results in overall negative effect which is drop in profits according to the accountants and we have to explain this paradox. We understand that the negative impact above needs to outweigh the positive and any option that explains how will be correct.
A) The first half of the option is talking about the old situation i.e. the revenue the company was getting from the customers who were paying the higher fee for FD. Now that the fee is reduced to low rate (of old SD) this first half revenue represents the decrease in revenue for all the customers that were already FD before and now enjoy a discount rate after the change. This value is higher than the second half of the option i.e. extra cost of providing SD to customers at lower fee (again this is the old situation), this cost represents the savings in cost after the proposed change. As the people who were previously using SD will shift to FD, the extra cost of providing SD (as in second half) will be gone once they shift to FD (the positive impact talked about above in the gist). Thus, this cost is actually the savings in the proposed. This option can be now worded in a different way representing the same thing, as follows:
decrease in revenue from the customers who shifted from old FD rates to new FD rates is higher than the savings that the company will get from providing all customers FD by replacing SD service. Basically, the negative effect of the change outweighs the positive effect in this option, thus explaining the drop in profits and hence the correct answer.
(this option does a great job of using terminology and phrases that are counterintuitive and in a way act as variables to the actual meaning behind them, the use of words revenue and cost are distracting here because they actually represent the opposite in a logical sense)
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02 Jun 2023, 10:29
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I banged my head on this one throught the day.. every explanations just sways through my head !!
But I cracked it.
Let the selling price of SD be S1 and Selling price of FD be S2
Similarly, cost price of SD be C1 and Cost price of FD be C2
Given,
S1 < S2 and C1 > C2
Overall profit before the proposed plan is implemented
S1-C1 + S2-C2
This profit according to accountant is more in comparison to profit when company provided FD to all its customers at the current low-fee rate.
The equation can be written as -
S1-C1 + S2-C2 > S1-C2
Hence on solving we get S2>C1. This is what statement A says and hence it is the answer.
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But I cracked it.
Let the selling price of SD be S1 and Selling price of FD be S2
Similarly, cost price of SD be C1 and Cost price of FD be C2
Given,
S1 < S2 and C1 > C2
Overall profit before the proposed plan is implemented
S1-C1 + S2-C2
This profit according to accountant is more in comparison to profit when company provided FD to all its customers at the current low-fee rate.
The equation can be written as -
S1-C1 + S2-C2 > S1-C2
Hence on solving we get S2>C1. This is what statement A says and hence it is the answer.
Posted from my mobile device
