Bunuel wrote:
More and more law firms specializing in corporate taxes are paid on a contingency-fee basis. Under this arrangement, if a case is won, the firm usually receives more than it would have received if it had been paid on the alternate hourly rate basis. If the case is lost, the firm receives nothing. Most firms are likely to make more under the contingency-fee arrangement.
Which of the following, if true, would most strengthen the prediction above?
(A) Firms that work exclusively under the hourly rate arrangement spend, on average, fewer hours on cases that are won than on cases that are lost.
(B) Some litigation can last for years before any decision is reached, and, even then, the decision may be appealed.
(C) Firms under the contingency-fee arrangement still pay their employees on an hourly basis.
(D) Since the majority of firms specialize in certain kinds of cases, they are able to assess accurately their chances of winning each potential case.
(E) Firms working under the contingency-fee arrangement take in fewer cases per year than do firms working under the hourly rate arrangement.
NEW question from GMAT® Official Guide 2019
(CR01102)
Step 1: Identify the Question
The word strengthen in the question stem indicates that this is a Strengthen the Argument question.
Step 2: Deconstruct the Argument
Cont. fee: firm wins case → more $ than hourly
Lose case → no $
© most firms Cont. fee $ > hourly $
The argument describes the way in which a law firm’s earnings are determined under a contingency-fee arrangement. (The alternative arrangement is an hourly rate.) If the firm wins the case, it earns more money than it otherwise would; if it loses, it earns nothing. The author concludes that most firms will make more money under this arrangement. Note that this relies on an assumption: that the extra money the firms make by winning cases will outweigh the potential money they lose by losing cases.
Step 3: Pause and State the Goal
On Strengthen the Argument questions, the right answer will make the conclusion more likely to be correct. In this case, the right answer will suggest that law firms will, in fact, earn more money by charging a contingency fee.
Step 4: Work from Wrong to Right
(A) This answer choice compares two scenarios under the hourly rate arrangement. However, it does not provide any information about what happens under the contingency fee arrangement. The right answer must suggest that earnings will be higher under the contingency fee arrangement, so it needs to provide some information about what happens under this arrangement as well.
(B) This answer choice does not give any information about law firms’ earnings, regardless of the fee arrangement. Litigation lasting for years might result in either a win or a loss, and might result in a higher or lower fee for the firm, regardless of fee structure.
(C) This answer choice explains the way that employees are paid. However, the argument is concerned with how much the firms earn, so their costs do not affect the argument.
(D) CORRECT. The argument assumes that the firms will gain more by winning cases than they will lose by losing cases. This answer choice suggests that the assumption is correct: since firms can tell which cases they’re likely to win, they can choose to only take those cases, which makes it very likely that their earnings will outweigh their losses.
(E) This statement only affects the conclusion if certain outside assumptions are made. If firms with fewer cases make less money, the answer choice suggests that switching to a contingency fee might reduce earnings. However, this is the opposite of what the right answer should do. Also, the right answer will never require additional assumptions to affect the conclusion.
Law firms are switching to payment on CF basis.
If they win, they earn more than they would have on that case on HR basis.
If they lose, they earn nothing.
Hypothesis: Most firms are likely to make more under the contingency-fee arrangement.
I would pre-think that the hypothesis would make sense if most firms win more cases than they lose. So from some cases they may earn nothing, but from more cases they will earn extra.
(A) Firms that work exclusively under the hourly rate arrangement spend, on average, fewer hours on cases that are won than on cases that are lost.
We don't know the rate connection between HR and CF so this statement doesn't help establish which arrangement will lead to higher earnings. But if more hours are put in cases that are lost, we completely lose that higher earning when we switch to CF basis. So if anything, it goes against our conclusion. Of course, the extra earnings from the cases we win could more than make up for this loss but we cannot establish one or the other because of lack of information.
So in any case, this certainly does not support our conclusion.
(B) Some litigation can last for years before any decision is reached, and, even then, the decision may be appealed.
Irrelevant. The time frame of receiving the payment is irrelevant. We are discussing the amount received.
(C) Firms under the contingency-fee arrangement still pay their employees on an hourly basis.
The costs are irrelevant. We are discussing revenue obtained.
(D) Since the majority of firms specialize in certain kinds of cases, they are able to assess accurately their chances of winning each potential case.
Correct. If at the beginning, they can access which cases they are likely to win and which they are likely to lose, they can easily take only the cases they are likely to win. This will increase their earnings.
(E) Firms working under the contingency-fee arrangement take in fewer cases per year than do firms working under the hourly rate arrangement.
Doesn't help our conclusion. Does fewer cases mean less earnings? Can't say but in any case, it certainly doesn't support more earnings.
Answer (D)