generis
A library currently has only coin-operated photocopy machines, which cost 10 cents per copy. Library administrators are planning to refit most of those machines with card readers. The library will sell prepaid copy cards that allow users to make 50 copies at 9 cents per copy. Administrators believe that, despite the convenience of copy cards and their lower per-copy cost, the number of copies made in the library will be essentially unchanged after the refit.
On the assumption that administrators' assessment is correct, which of the following predictions about the effect of the refit is most strongly supported by the information given?
A) Library patrons will only purchase a copy card on days when they need to make 50 or more copies.
B) No library patrons will increase their usage of the library's photocopy machines once the refit has been made.
C) If most of the copy cards sold in the library are used to their full capacity, the number of people using the library's photocopy machines over a given period will fall.
D) Revenues from photocopying will decrease unless most library patrons choose to use the remaining coin-operated machines in preference to the card-reader equipped ones.
E) Revenues from photocopying will increase if copy cards that are purchased are, on average, used to significantly less than 90 percent of their capacity.
As a person who needs to read companies' financial reports from time to time, I do not like the option (E) at all because I think that the time frame for "revenues" is unclear and also because I think that the option (E) might be valid only if there is an extra assumption that generally these pre-paid cards whose usage rates are significantly less than 90 percent on average will never be used again. I am not sure whether the wording in the option (E) has already expressed the idea itself.
This extra assumption (or not, if the wording of (E) has conveyed this idea) is highly contradictory to my common sense--at college, yes not every student uses his or her prepaid card to the full capacity, but most students who use "significantly" less than 90 percent of the capacity, or 50 percent for example, will remember to continue using the card in the next semester or next year.
I am to give an example to show why I do not like the option (E). Accounting is not my expertise, so I am a bit curious how the members who are accountants think about (E), although the professional knowledge will not be required for GMAT.
Let's say year 1 and year 2. In the year 1, the library finished the refit and sold the pre-paid cards. As we are told by the stimulus that the number of copies made in the library will be essentially unchanged and we know from the option (E) that the cards are used less than 90 percent of their capacity, we can infer that the overall combined copy capacity of all sold pre-paid cards must surpass the number of copies that were really made in the year 1.
For example, there are 10 customers who need to do 1,000 copies in total every year. We cannot infer how many of them would change to use the pre-paid cards or whether some of them would buy the cards together to share to save money. But from the information of the option (E) "
if copy cards that are purchased are, on average, used to significantly less than 90 percent of their capacity," we can be sure that we are dealing with a scenario in which at least two pre-paid cards were sold, and their average usage rate is much lower than 90 percent.
Let's be conservative--say 9 customers who need to make 900 copies routinely per year still used the coin-operated machines after the refit. Revenue from these customers did not change at all. One customer who need to make 100 copies per year bought the prepaid cards. Since we know that these cards are not fully used, this customer must have bought more than 2 cards (50 copies per card, 100 copies for two cards). If the cards' average usage rate is 50 percent, this customer bought 4 cards (100/200=50 percent). (The lower the usage, more prepaid cards the customer has bought.) The library made revenue of 450*4=1,800 from this customer, and this revenue is higher than 10*100=1,000 the library would have earned from this customer if the refit had not been made.
So far, the option (E) holds, and I have no problem. But my biggest concern is: what about the year 2? I have difficulty believing that this customer would never use the copy cards again in the year 2--this is strongly against my common sense.
If this customer continues to use the pre-paid cards to make another 100 copies in the year 2, the library would make no revenue from her or him in that year. In the end, the library's total revenue from this client for the year 1 and year 2 would total 1,800, lower than 1,000*2=2,000 it could have made without the prepaid card system.
avigutman IanStewart GMATNinja may I check with you--when (E) says
Revenues from photocopying will increase if copy cards that are purchased are, on average, used to significantly less than 90 percent of their capacity, does it exactly mean not only that
the cards' average usage rate is significantly lower than 90 percent, but also that
the rate would stand at this low level forever? In other words, I do not really need to care about "what if" for the future, right?
If this is the exact meaning from the option (E), I would understand why it is a correct option, though I do not think this scenario is that possible in the real world (at least in my world.)
Secondly, given that we are allowed to use common sense in the verbal section, may I ask what should I do if I find an option's information is likely against my common sense? This is an inference-type question and the stem does not say
which option, if true..... I am aware that this part
if copy cards that are purchased are, on average, used to significantly less than 90 percent of their capacity is a condition in the option (E)--does it mean that I just need to take this condition as true (however I feel strange at it)?
Finally, may I ask how you approached this question and arrived at the option (E)? It is really a big and unexpected twist for me to see "increasing revenue" in (E) while the stimulus talks much about that cost/revenue per card is lower in the prepaid system.
I could see why the options (A), (B) and (C) are incorrect, and chose (D) for the first time in my practice. Thank to the explanations of
KarishmaB, later I understood why the option (D) is wrong. I think I got a takeaway from this CR question: when four options have been ruled out, just select the remaining one and move on, however I dislike it.
Sorry that my query is a bit long.
Thank you and look forward to your insights.
The following are some posts that might relate to my query.
KarishmaB
D) Revenues from photocopying will decrease unless most library patrons choose to use the remaining coin-operated machines in preference to the card-reader equipped ones.
'Most' is not good enough. 'All' can be inferred. All need to use coin machines to keep the revenue steady.
Quantum2022
Shouldn't answer 'E' say revenue PER COPY will increase? The way it's written now, how can we infer total revenue will increase even if significantly less than 90% of the card's capacity is used? For example is someone printed only 10 copies but paid 450 cents for the card, the revenue per copy will be 45 cents which is clearly more than 10 cents. Where is my thinking off?
AntrikshR
I have a silly doubt regarding option E.
We are assuming here that the cents un-utilized in the card is going as extra revenue to the library. (Unless the un-utilized money goes back to the library every month)
However, cents can be used at later point in time right!
So if I deconstruct the statement given in E "Revenues from photocopying will increase if copy cards that are purchased are, on average, used to significantly less than 90 percent of their capacity.". It means if copy cards were used for SIGNIFICANTLY less than 90 % (45 copies) copies then profit of the library will increase.
Using card: If a person is photocopying 10 copies (significantly less than 45) in a particular month=> his expenditure will be 90c, so he/she has 360c in his/her card. The remaining amount is still in the card which he/she can use later point in time. So how can we consider the unused amount of the card as profit earned by the library?
Using old machine: If the same person is photocopying 10 copies, he/she will pay 100c.
So overall, library is losing money.
Please help me understand if there is a gap in my understanding.
Fdambro294
Each copy essentially only costs 9 cents. The key is that the cards are prepaid and customers are not using them to their potential.....while the total copies stay the same. More money up front for the big, bad corporate library.....what’s up with these libraries always trying to take money out our pocket?
Therefore, based on answer E’s “IF” hypothetical about the usage and the facts given, the revenue MUST go up. The cards are prepaid and on average the customers aren’t fully using them.
The question stem is slightly different from a pure inference question stem in which we need to make a 100%, without a doubt, locked in with certainty Inference. (Called deductions?)
E is very strongly supported - right under that 100% Inference level.
Anant87
I had a fundamental doubt regarding this question - If the number of copies DONOT change & the cards are PREPAID then the new revenue is fixed (it cant change either!)
If the number of copies previously were 500 then the revenue would have been 5000. If we assume the same number of copies this year (500) then the revenue would be 9*500 = 4500. Now if we consider option (E) - that each card is under-utilized significantly - then the "revenue per copy" can increase but NOT the actual revenue - as the actual revenue has already been garnered.