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For similar cars and drivers, automobile insurance for [#permalink]
10 Feb 2004, 16:03
0% (00:00) correct
0% (00:00) wrong based on 3 sessions
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For similar cars and drivers, automobile insurance for collision damage has always cost more in Greatport than in Fairmont. Police studies, however, show that cars owned by Greatport residents are, on average, slightly less likely to be involved in a collision than cars in Fairmont. Clearly, therefore, insurance companies are making a greater profit on collision-damage insurance in Greatport than in Fairmont.
Which of the following is an assumption on which the argument depends?
A. Repairing typical collision damage does not cost more in Greatport than in Fairmont.
B. There are no more motorists in Greatport than in Fairmont.
C. Greatport residents who have been in a collision are more likely to report it to their insurance company than Fairmont residents are.
D. Fairmont and Greatport are the cities with the highest collision-damage insurance rates.
E. The insurance companies were already aware of the difference in the likelihood of collisions before the publication of the police reports.
This question was taken from http://www.testmagic.com/forum/topic.asp?TOPIC_ID=9440. There is no answer for this question but I'd like a debate on this question. I chose A for this question but I'm not sure as to how to explain how it is better or worse than the answer C given by the others. Can someone explain their reasoning?
B) Does not weaken because if we assume there are less motorists in
G than in F the overall insurence money collected will not be less
because per motorists the rate is higher. Even if they are more in
number then the insurence company will even collect more.
Even if there more motorists it is not necessary that all accidents
will endup in a damage that would cost more.
C) Does not weaken because whether or not they report more accidents
the accidents may be minor and may not have much damage. This does
not talk about the cost of the damage.
Profit = ( Number Of Policies * Premium per policy) тАУ (Cost Of Repair per Accident * Number Of Policies * Accident Rate )
Profit = Number Of Policies * [Premium per policy тАУ cost Of Repair per Accident * accident rate]
My confusion lies in interpreting the conclusion.
Does the conclusion, тАЬinsurance companies are making a greater profit on collision-damage insurance in Greatport than in Fairmont.тАЭ Means total profit on collision-damage insurance or profit per policy.
I assumed that the profit mentioned in the conclusion is total profit.
If so, we have four variables, out of which two are stated in the premise.
Other two variables have to be the assumptions and they are
1. Cost of Repair per accident in each city.
2. total number of polices in each city.
Based on the above information, we can't pick any single correct answer.
If we assume that the profit mentioned in the conclusion is profit per policy then
Only тАЬcost of repair per accidentтАЭ has to be assumed.
In which case the answer is clearly A.
IтАЩm not a native speaker and my SC score is not even half of many people in the forum.
Could some one validate my interpretation of the conclusion.
Last edited by kpadma on 10 Feb 2004, 20:03, edited 1 time in total.
One heck of an analysis man. My brain just exploded. I need to have my brain intact till I take GMAT.
However your analysis is elaborate and in the correct direction. As you said there are two variables that are unknown. Then answers should be either A or B. I hope you agree.
If there are more motorists so what. They may be uninsured or may just own a car for the heck of it and use NJ transit ( Lot of my friends do ). The reason for less accidents may be that they dont use a car or their roads are lot better than those in NJ. Infinite reasons.
You are comparing two things and talking about the price difference then every other attribute of those two things must be same right. Only B and A highlight these similarities. A is better because B further assumes everyone who drives a car has insurance (unlike in NY). A has no further assumptions.
If there are more motorists so what. They may be uninsured or may just own a car for the heck of it and use NJ transit ( Lot of my friends do ) A is better because B further assumes everyone who drives a car has insurance (unlike in NY). A has no further assumptions.
I see your point. But, why can't one presuppose that the cost of repair
doesn't vary among cities. I don't think it is a unwarrented presupposition.
Anyway, GMAT questions always have one clear answer.
This question, as it stands, is not clear. Does anyone know the source
of the question?
I hope, We don't get these kind of questions in GMAT
The answer should be A, since the statement holds good on the assumption that the costs for repair is the same, since we are talking about the company making profit.
C cannot be the anwer, if Greatport residents are more likely report to the insurance then the insurance firm looses more money (not making profit), (the more the number of people report, the more the insurance firm has to pay) .... am I right?
This is the best explanation to date that I've seen by Carsen on the link I first gave you. Very clear cut answer
I may be going off in a totally different direction here
To me, (A) or (B) could be the answer
The way that we can compare two things is if they are same in all respects, or rather one does not have an undue advantage over the other
(B) says that the number of motorists in the two places are equal,
SHould'nt this be the basis of comparision ?
If the number of motorists in Fairmont are greater, much greater than Greatport, then offcourse, then we cannot compare the two at all, because you cannot compare the insurance of 10 motorists to a 100 and derive a conclusion. and the statement starts with "similar cars and similar drivers", I don't think that says, same number of drivers
A could also be the answer, but I am not able to eliminate one of them here, A says that the other damage costs stay the same, which basically means that everything else being same, which is necessary to get the conclusion described.
Any thoughts or pointing flaws in my reasoning are most welcome !!!
Would like to learn !
All we need to know is that car+driver+cost or repair is same in order to ascertain that because cost of insurance is greater in Greatport, then it means that they are reaping more profits. Car+driver variables being similar is given in stimuli.
In (A) cost of repair being same is given and that is how we can acknowledge the conclusion. (B) is off topic. We don't need to know anything about motorists since this question concerns automobiles