Premise 1: Selta is a middle sized automobile company, which is currently spending a lot in developing an environment friendly variation of its existing vehicle that runs on diesel.
Premise 2: However, the market now needs electric vehicles, which are more environmentally friendly than diesel vehicles.
Conclusion: Hence the profit margin from selling electric vehicles is much higher than that from selling diesel vehicles.
Asked: Which of the following options, if true, gives an economic explanation for Selta's investments in the less profitable vehicle of the two mentioned in the passage above?
Quote:
A. Electric vehicles are not as environmentally friendly as generally thought, because they are charged by sources that burn diesel to generate electricity.
Since electric vehicles are charged by sources that burn diesel to generate electricity, they are not more environmentally friendly than environment friendly variation of diesel vehicle. Therefore, Selta's investments in the less profitable vehicle of the two seems economically justified.
Correct
Quote:
B. Selta’s management is led by people who are not very concerned about developing environmentally friendly technologies.
The statement does not provide economic explanation for Selta's investments in the less profitable vehicle of the two since environmentally friendly vehicles have higher profit margins. It shows management incapability to develop environmentally friendly technologies.
Incorrect
Quote:
C. The R&D team in Selta has a thorough knowledge in development of diesel engines.
The statement does not provide economic explanation for Selta's investments in the less profitable vehicle of the two since environmentally friendly vehicles have higher profit margins. Even if the R&D team in Selta has a thorough knowledge in development of diesel engines, it should adapt newer higher profitable and environmentally friendly technologies.
Incorrect.
Quote:
D. Electric vehicles are practically maintenance free, whereas diesel vehicles need periodic maintenance including replacement of costly spare parts.
The statement does not provide economic explanation for Selta's investments in the less profitable vehicle of the two since environmentally friendly vehicles have higher profit margins since diesel vehicles are not only less environmentally friendly, but also need more periodic maintenance, making them even less attractive technology to invest in.
Incorrect
Quote:
E. The diesel vehicles can also incorporate the safety features typically available in electrical vehicles.
The statement does not provide economic explanation for Selta's investments in the less profitable vehicle of the two since environmentally friendly vehicles have higher profit margins since it is concerned with safety features of the vehicles.
Incorrect
IMO A