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01 May 2022, 10:42
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Hi AndrewN
If the cost of oil increases, it will increase both for maintaining the old burner and the new burner. It is the quantity of oil that will be considerably less for the new burner. So the effective difference between these two expenses i.e "new cost x (old quantity - new quantity of oil)" should still remain the same. What am I missing in option E ?
There is no where mentioned in the question that existing plant uses more than 1 burner. In fact it says "cost savings between the total amount the asphalt plant actually paid for oil using its former burner " and I believe that should be sufficient to assume that there is no other burner. So if we go by option B, the use of 2 new burners would in turn reduce the amount of payment received as it would be calculated based on the oil used by just 1 old burner. What is wrong with option B ?
If the cost of oil increases, it will increase both for maintaining the old burner and the new burner. It is the quantity of oil that will be considerably less for the new burner. So the effective difference between these two expenses i.e "new cost x (old quantity - new quantity of oil)" should still remain the same. What am I missing in option E ?
There is no where mentioned in the question that existing plant uses more than 1 burner. In fact it says "cost savings between the total amount the asphalt plant actually paid for oil using its former burner " and I believe that should be sufficient to assume that there is no other burner. So if we go by option B, the use of 2 new burners would in turn reduce the amount of payment received as it would be calculated based on the oil used by just 1 old burner. What is wrong with option B ?
03 May 2022, 04:17
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Namangupta1997
Hello, Namangupta1997. Thank you for being patient while I have been on vacation. I think what you are missing in answer choice (E) is that the price of oil is said to steadily increase only after the new burner is installed, and soon after at that. This change in oil pricing at the exact time of the switchover to the new oil burner would only hurt the chances that the plan would be successful—i.e. lucrative—for Hotco.
You raise an interesting point about the language used in the passage and in answer choice (B): will sell one and the subsequent reference to the Hotco burner from the passage can only reasonably be interpreted as a single burner, but then we see this new consideration involving multiple burners in the answer choices. I can see a few directions the discussion could take, but I have trouble justifying how Hotco would lose out by selling Clifton Asphalt multiple burners. Consider the following scenarios:
1) Only the first burner, the one mentioned in the opening line, is sold under the conditions provided in the passage: will sell one for no payment other than... Hotco could then sell an extra burner that was not subject to the conditions. This extra burner would have nothing to do with the plan itself.
2) Like the Tesla Solar Roof and its Powerwall integrated battery system, the Hotco oil burner might be efficient but have only so much capacity before a second unit would need to be purchased. Not only can we not assume that the second unit would be subject to the same terms of sale as the first, we also cannot assume that two more efficient units would require more oil to the point that even if the second burner was subject to the same terms of sale as the first, Hotco would lose out. Consider this: if the old burner had a capacity of, say, 5000 gallons, and used all that oil, and the new ones each have a capacity of 2000 gallons (since they are more efficient), the net reduction of 1000 gallons would still be substantial. (It does not take a Bunuel to appreciate the 20 percent decrease.) Depending on the price of oil—note the language in paid for oil versus will pay for oil that lies at the heart of the plan—this could still be a winning proposition for Hotco. There is, at least, no way to lean on anything but an assumption that Hotco could be making a bad deal in seeing through its plan.
Answer choice (B) ultimately does not hold up to scrutiny, so we have to abandon it. Perhaps the question makes more sense now. Thank you for thinking to ask, and again, thank you for your patience while awaiting my response.
- Andrew
03 May 2022, 04:44
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AndrewN
Hi AndrewN
Thanks a lot for your explanation. Option E is clear now.
Regarding option B, I agree that we have go as far as to make some crude assumptions to conclude that Hocto would DEFINITELY make a loss. But consider this :
Deal 1 : 1 new burner for 1 old existing burner. Profit earned by Hocto is simply the difference in the amount of the oil used by them.
Deal 2 : 2 new burners (the other burner exactly the same as used in Deal 1) for 1 old burner (performing exactly the same as it did in Deal 1). Profit earned by Hocto here is decreased as Hocto has spent money to install 2 burners. The return Hocto is getting is still based on just the one burner, which, since having the same performance, would need the same amount of oil.
Sure we can argue that Hocto is still making profit in both the arrangements, but if we compare them side by side, Deal 1 is just MORE profitable.
Does this all make any sense?
03 May 2022, 05:06
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Namangupta1997
Yes, Namangupta1997, it does make sense, and I am not disagreeing with the points you have brought up. The problem I think you are having is that you may have lost sight of the question stem:
Quote:
We cannot look at answer choice (B) and then point to anything in the passage to support the contention that (B) would constitute a disadvantage for Hotco. Sure, there could be a disadvantage, but there could just as likely be an advantage, with a case to be made on either side of the debate. But we are looking for something more concrete here, and it is quite hard to debate the merits of answer choice (E), as explained earlier.
Watch those question stems carefully. When they do not conform to more patent types, they can easily trip up someone who has shifted into autopilot. Thank you for following up.
- Andrew
