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Namangupta1997
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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?
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:
Which of the following, if it occurred, would constitute a disadvantage for Hotco of the plan described above?
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
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Hotco oil burners, designed to be used in asphalt plants, are so efficient that Hotco will sell one to the Clifton Asphalt plant for no payment other than the cost savings between the total amount the asphalt plant actually paid for oil using its former burner during the last two years and the total amount it will pay for oil using the Hotco burner during the next two years. On installation, the plant will make an estimated payment, which will be adjusted after two years to equal the actual cost savings.

Which of the following, if it occurred, would constitute a disadvantage for Hotco of the plan described above?


A) Another manufacturer’s introduction to the market of a similarly efficient burner

B) The Clifton Asphalt plant’s need for more than one new burner

C) Very poor efficiency in the Clifton Asphalt plant’s old burner

D) A decrease in the demand for asphalt

E) A steady increase in the price of oil beginning soon after the new burner is installed

Hello Experts,
GMATNinja , RonTargetTestPrep , KarishmaB
Please help me eliminate Option D.

My Understanding:-

Payment to Hotco = (A)Amount Paid for using old burner for the past 2 years- (b)Amount that will be paid for using new burner in the next 2 years.

Now ,
This can be simplified as:-
(A) Quantity of Oil bought in the past 2 years x Price of the Oil - (B) Quantity of Oil that will be purchased in the next 2 years x Price of the Oil in the next 2 years

It will be beneficial for Hotco if B is lower . Now B can be lower if quantity of oil purchased is lower or the price is higher.

Choice D says that the decrease in the demand for Asphalt. Hence the quantity of Oil purchased will decrease ,consequently equation B will decrease .

Hence will be disadvantageous for the plan of Hotco


When we look at the choice E ,It says that the price will increase. This will also decrease the second equation.

Hence will be disadvantageous for the plan of Hotco.

According to me both the choices are equal contender.
How to eliminiate Choice D ?


Thanks.
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run4run
Hotco oil burners, designed to be used in asphalt plants, are so efficient that Hotco will sell one to the Clifton Asphalt plant for no payment other than the cost savings between the total amount the asphalt plant actually paid for oil using its former burner during the last two years and the total amount it will pay for oil using the Hotco burner during the next two years. On installation, the plant will make an estimated payment, which will be adjusted after two years to equal the actual cost savings.

Which of the following, if it occurred, would constitute a disadvantage for Hotco of the plan described above?


A) Another manufacturer’s introduction to the market of a similarly efficient burner

B) The Clifton Asphalt plant’s need for more than one new burner

C) Very poor efficiency in the Clifton Asphalt plant’s old burner

D) A decrease in the demand for asphalt

E) A steady increase in the price of oil beginning soon after the new burner is installed

Hello Experts,
GMATNinja , RonTargetTestPrep , KarishmaB
Please help me eliminate Option D.

My Understanding:-

Payment to Hotco = (A)Amount Paid for using old burner for the past 2 years- (b)Amount that will be paid for using new burner in the next 2 years.

Now ,
This can be simplified as:-
(A) Quantity of Oil bought in the past 2 years x Price of the Oil - (B) Quantity of Oil that will be purchased in the next 2 years x Price of the Oil in the next 2 years

It will be beneficial for Hotco if B is lower . Now B can be lower if quantity of oil purchased is lower or the price is higher.

Choice D says that the decrease in the demand for Asphalt. Hence the quantity of Oil purchased will decrease ,consequently equation B will decrease .

Hence will be disadvantageous for the plan of Hotco


When we look at the choice E ,It says that the price will increase. This will also decrease the second equation.

Hence will be disadvantageous for the plan of Hotco.

According to me both the choices are equal contender.
How to eliminiate Choice D ?


Thanks.

Your analysis is almost correct but not quite.

Payment to HotCo = (A) Quantity of Oil bought in the past 2 years x Price of the Oil - (B) Quantity of Oil that will be purchased in the next 2 years x Price of the Oil in the next 2 years

We need the option that creates a disadvantage for HotCo i.e. reduces payment to HotCo.
(A) is already fixed. If (B) is greater, payment to HOtCo is smaller and hence disadvantage to HOtCo.

(B) Quantity of Oil that will be purchased in the next 2 years x Price of the Oil in the next 2 years

If quantity of oil used is less, (B) is smaller, not greater. So HOtCo will be at an advantage. Hence option (D) puts HOtCo at an ADVANTAGE.

If price of oil increases, (B) is greater. So HotCo gets less payment. So HotCo is at a disadvantage. Hence option (E) puts HotCo at a disadvantage.

Answer (E)
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Hotco oil burners, designed to be used in asphalt plants, are so efficient that Hotco will sell one to the Clifton Asphalt plant for no payment other than the cost savings between the total amount the asphalt plant actually paid for oil using its former burner during the last two years and the total amount it will pay for oil using the Hotco burner during the next two years. On installation, the plant will make an estimated payment, which will be adjusted after two years to equal the actual cost savings.

Which of the following, if it occurred, would constitute a disadvantage for Hotco of the plan described above?


A) Another manufacturer’s introduction to the market of a similarly efficient burner

B) The Clifton Asphalt plant’s need for more than one new burner

C) Very poor efficiency in the Clifton Asphalt plant’s old burner

D) A decrease in the demand for asphalt

E) A steady increase in the price of oil beginning soon after the new burner is installed


Why A) is not correct? Can someone pls explain?
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Hi, ChiranjeevSingh

Thanks for such a detailed explanation for option B, you are a god-send tutor for non natives like us.
I am only anxious about how will I come to such reasoning in exams ? should i bother about that in my learning phase right now or will such reasoning eventually come with time ?

Kindly help
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Hi, ChiranjeevSingh

Thanks for such a detailed explanation for option B, you are a god-send tutor for non natives like us.
I am only anxious about how will I come to such reasoning in exams ? should i bother about that in my learning phase right now or will such reasoning eventually come with time ?

Kindly help

Hi,

I just wrote an article in response to your question: https://bit.ly/41XbLMa

Let me know whether that answers your question.
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ChiranjeevSingh, yes it does, Thanks a lot !
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