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Diomedes Motors has just decided to start using Rapilux Tires on most

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Diomedes Motors has just decided to start using Rapilux Tires on most  [#permalink]

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New post 02 Sep 2015, 12:56
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A
B
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E

Difficulty:

  15% (low)

Question Stats:

86% (01:53) correct 14% (02:10) wrong based on 124 sessions

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Diomedes Motors has just decided to start using Rapilux Tires on most models of its new cars. The tires cost the same as the previous tires, and the change in tires will not change the sticker price of any car, nor will it change the profit on the sale of any particular car. Nevertheless, the CEO of Diomedes Motors expects this change in tires to increase Diomedes' profits in the coming year.

Which of the following, if true, provides the best reason for the expectation?

A) The new Rapilux Tires facilitate loading the new cars onto the trucks that deliver them to the Diomedes showroom.
B) The change to Rapilux Tires in most Diomedes models moves those models to the highest safety rating category; several national consumer advocacy groups give focused advertising to cars in this category.
C) Since Diomedes has replaced the tires on only some of its models, it can continue to accommodate car buyers who prefer the older tire type.
D) Few car buyers are likely to decide against buying a Diomedes Motors model simply because it now comes with Rapilux Tires.
E) Some of the tires previously used on these particular Diomedes models are being phased out by those tire manufacturers, and would have to be replaced anyway, and no tire that would fit these Diomedes Models is any cheaper than the Rapilux Tires chosen.

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Re: Diomedes Motors has just decided to start using Rapilux Tires on most  [#permalink]

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New post 02 Sep 2015, 15:42
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Harley1980 wrote:
Diomedes Motors has just decided to start using Rapilux Tires on most models of its new cars. The tires cost the same as the previous tires, and the change in tires will not change the sticker price of any car, nor will it change the profit on the sale of any particular car. Nevertheless, the CEO of Diomedes Motors expects this change in tires to increase Diomedes' profits in the coming year.

Which of the following, if true, provides the best reason for the expectation?

A) The new Rapilux Tires facilitate loading the new cars onto the trucks that deliver them to the Diomedes showroom.
B) The change to Rapilux Tires in most Diomedes models moves those models to the highest safety rating category; several national consumer advocacy groups give focused advertising to cars in this category.
C) Since Diomedes has replaced the tires on only some of its models, it can continue to accommodate car buyers who prefer the older tire type.
D) Few car buyers are likely to decide against buying a Diomedes Motors model simply because it now comes with Rapilux Tires.
E) Some of the tires previously used on these particular Diomedes models are being phased out by those tire manufacturers, and would have to be replaced anyway, and no tire that would fit these Diomedes Models is any cheaper than the Rapilux Tires chosen.

Dear Harley1980,
I'm happy to respond. :-) As always, I am happy to answer questions about problems I created. :-)

So, Diomedes Motor is switching to this new tire. The new tire is about the same price, and nothing changes about the sticker price or the profit from the sale of an individual car. Yet, Diomedes Motors is expecting an increase in profits. Why would switching to the new tire bring more money into Diomedes?

A) The new Rapilux Tires facilitate loading the new cars onto the trucks that deliver them to the Diomedes showroom.
This is not big. This is mostly a matter of convenience for the big burly guys that load and unload cars and deliver them. Perhaps it would result in some modest decrease in shipping and delivery costs, but that would be chicken feed, completely negligible one the scale of a car company's budget.

B) The change to Rapilux Tires in most Diomedes models moves those models to the highest safety rating category; several national consumer advocacy groups give focused advertising to cars in this category.
This is interesting. New tires ==> new safety rating ==> national focused advertising. Whoa! Think about that. Ads around the country suddenly saying: buy Diomede Motors cars because they have the highest safety rating. Safety is a HUGE factor in car purchases, and if the company is getting free national advertising that communicates how safe its cars are, that could lead to an avalanche of new customers! This is a very promising choice.

C) Since Diomedes has replaced the tires on only some of its models, it can continue to accommodate car buyers who prefer the older tire type.
Some customers buy the new tires, some buy the old, and the two tires are around the same price, so this is not going save much money or create much in the way of new revenue.

D) Few car buyers are likely to decide against buying a Diomedes Motors model simply because it now comes with Rapilux Tires.
Well, this simply tells us that they are not likely to lose money, but that does not by any means guarantee that they are out to make a large amount of additional money.

E) Some of the tires previously used on these particular Diomedes models are being phased out by those tire manufacturers, and would have to be replaced anyway, and no tire that would fit these Diomedes Models is any cheaper than the Rapilux Tires chosen.
So, this choice had a lower cost than other choices. Great. They have minimized costs, with a tire that costs about the same as the old tire they were using. They are making more profits compared to what they would be making if they chose one of the more expensive tires. This does not explain any increase from the old tire to the new tire, which is the change that really concerns us.

Of these five answers, the only one that suggest a channel by which a whole lot of new revenue might be flowing in to Diomedes Motors is (B). That's the only possible answer.

Does all this make sense?
Mike :-)
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Re: Diomedes Motors has just decided to start using Rapilux Tires on most  [#permalink]

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New post 06 Aug 2018, 17:49

Official Explanation


In this argument, all the evidence cited seems to indicate no major change in profits. Diomedes Motor's expectations must be based on some new piece of evidence, not considered in the prompt.

(B) is the credited answer. The change in tires will move the cars to the highest safety rating category, which results in free advertising from highly reputable sources, the national consumer advocacy groups, who will now advertise these cars as among the safest on the road! That's huge! That is quite likely to result in increased sales & increased profits.

Choice (A) indicates some minor convenience associated with the Rapilux Tires, but this would not be a meaningful source of any additional profits.

Choice (C) if some consumers aren't going to change their preference or buying patterns, that speaks to an aspect of revenue that is not likely to change much, and which thus does not explain increased profits.

Choice (D) is weak support: the Rapilux Tires are not a deterrent for many folks. This is evidence that profits won't steeply decline as a result of the change, but that's hardly evidence in and of itself for a marked increase in profits.

Choice (E) indicates the inevitability of a change in tires, but that, in and of itself, gives no indication that the change will be inherently profitable.
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Re: Diomedes Motors has just decided to start using Rapilux Tires on most &nbs [#permalink] 06 Aug 2018, 17:49
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