In order to increase revenues, a cell-phone company has

D) One-fifth of the company's customers use in excess of 1,000 minutes per month.


Assume there are 10 customers.
Revenue from old plan(assuming 1/5th people used 1000 hrs)= 10*20+ (1/5*10)(1000-200)*0.5=200+800=1000
Revenue from new plan=10*50=500

sayantanc2k considering B ,is it not very clear that revenue as per new plan is less than revenue as per old plan?

can you mathematically explain how d is wrong?

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I am not able to understand how B and D are out of scope and A is correct?? Humble request to experts to give proper explanation.

Good question
Now what will give us reason to believe that the plan to change fee structure to charge 50 dollars for unlimited usage will not work .
A clearly gives us that reason as it tells us that a rival company already is giving the same plan for 40 dollars then people will surely opt for the cheaper service.
B is actually very hazy it does not give us any information about the actual break up of customers.
C suppose majority of the customers use 50 minutes then after the new plan they will consume 75 minutes then the consumers will be at loss they may choose different service provider.
D Again same type of reasoning as used in C
E Out of scope.

Hi ,
We dont know the actual break up of the customers so we can not infer anything .
if majority of the people are use 100 minutes then they are at loss due to new plan . They might switch service .
D also uses same type of reasoning.

GMATNinja sayantanc2k ... i have a question

when a plan is mentioned in the argument and we are asked to evaluate the success of the plan , another competing plan employed by someone else can weaken the success? when is it should we just focus on the specific plan>?
is it when we are asked about the efficiency or viabilty of the plan?

I have gone through the discussion. I am still not convinced with option a. I understand the logic behind it being the correct answer, but it still seems out of scope.

Please help!

Posted from my mobile device

Hi buddy,
Just because rival company reduces fee doesn't necessarily mean customers will move away from the current network.

Just imagine a case where the customers prefer other factors like good network coverage or good customer service, which may be available in the existing network. In such a scenario, customers are unlikely to move to a new network rather stay with the current operator paying extra.

I vote against Option A.

I m still pondering between B and D. Both are seemingly sound options.

Hope my assumption is rational .

(A) is problematic.
There are plenty of things when someone choose their cellular provider, other than star-up fee or service price.
So we can not conclude whether customers move to rival company or not. so (A) is out of scope here.
(B) and (D) seem to be more apropriate answer.

(A) is problematic.
There are plenty of things when someone choose their cellular provider, other than star-up fee or service price.
So we can not conclude whether customers move to rival company or not. so (A) is out of scope here.
(B) and (D) seem to be more apropriate answer.

This is definitely a problematic question.
First of all, we are concerned with the success of the plan of the current company and how the new plan will/ will not actually increase the company's revenues.

In this particular case, we SHOULD NOT be bothered about what another company XYZ does. The argument deals only with how the current plan results in the success or failure of the expectation of the said company.

A: Doesn't make sense to me at all to be considered in this scenario. Even if the competitor launches that lucrative plan, does that mean that the revenue of the original company won't increase AT ALL?? No new customers will join to the existing company and no existing customers will pay more as a result of the proposed plan? There are lots of ifs and buts in this. We can keep justifying this option for the sake of marking this question correctly but this option doesn't concern itself with the said plan and outcome of the plan mentioned in the argument.

B and D are equally wrong if you do the math for this. 20$/month + 0.50(T-200) = 50$/month. This gives T = 260. It means as long as users are using at max 260 minutes, the company is in a breakeven. As soon as the users use more than 260 minutes in a month, the 50$ plan goes out of the window. Now B says that the majority of users use less than 500 minutes per month. How much less? 300?400? 450? 499? 130? 50? we are not sure. Can result in both success or failure of the plan.
Similarly, option D goes to the other extreme (1000 minutes), but says that only 20% of users do this. Again, we have no idea about the other big chunk (80%) of users.

E is out of scope.

C is interesting: Studies have shown that customers using unlimited calling plans will increase their monthly usage of minutes by over 50 percent.

so let's say the existing company calculated the average minutes used by the majority of users in a month and then they proposed the plan of 50$/month. We can consider this because no company would blindly pick a number for a new plan. Now what if after all this calculation, the users increase their monthly usage by 1.5 times!?? Then all that calculation gets tossed out of the window! This is impacting that there is a big chance for revenue to get decreased.


Hence, I firmly believe that option C is correct.

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