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# Public-sector (government-owned) companies are often unprofitable and

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Re: Public-sector (government-owned) companies are often unprofitable and [#permalink]
Is the Ans - E??
I am confused between C & E.
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Bunuel wrote:
Public-sector (government-owned) companies are often unprofitable and a drain on the taxpayer. Such enterprises should be sold to the private sector, where competition will force them either to be efficient and profitable or else to close.

Which of the following, if true, identifies a flaw in the policy proposed above?

A. The revenue gained from the sale of public-sector companies is likely to be negligible compared to the cost of maintaining them.
B. By buying a public-sector company and then closing the company and selling its assets, a buyer can often make a profit.
C. The services provided by many public-sector companies must be made available to citizens, even when a price that covers costs cannot be charged.
D. Some unprofitable private-sector companies have become profitable after being taken over by the government to prevent their closing.
E. The costs of environmental protection, contributions to social programs, and job-safety measures are the same in the public and private sectors.

CR31661.01
Verbal Review 2020 NEW QUESTION

Hi rocking1994abhi and Arihant1991
I can give my 2 cents as to why C is the correct answer.
Let's first nail down the argument. It says that public companies make no profit and they exist on taxes thus they must be privatized. Those companies will either have to make profit or else be closed down. Now, we need to say that this option is not wanted because even if those companies do make losses, we still need to keep them running. Only option C suggests this by saying that the services they provide are needed for public. IMO, D strengthens conclusion, while E is irrelevant.
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Re: Public-sector (government-owned) companies are often unprofitable and [#permalink]
Hi, Can someone kindly share why option D is incorrect please?
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Re: Public-sector (government-owned) companies are often unprofitable and [#permalink]
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Can anyone please tell me why A is incorrect ?
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Re: Public-sector (government-owned) companies are often unprofitable and [#permalink]
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LoneSurvivor wrote:
Can anyone please tell me why A is incorrect ?

If the policy proposed in the passage were adopted, then any unprofitable enterprises would be sold to the private sector. Keep this in mind and take another look at (A):
Quote:
A. The revenue gained from the sale of public-sector companies is likely to be negligible compared to the cost of maintaining them.

Let's say that a certain public enterprise is unprofitable. Under the proposed policy, the government would sell the enterprise to the private sector and earn revenue from that sale. The cost of maintaining the business would then fall on whoever bought it, and not on the government. So, overall, the government would enjoy the revenue from the sale, and would not be responsible for any ensuing costs.

It doesn't matter whether the revenue from the sale is likely to be negligible when compared to the cost of maintaining the company -- the government still earns some revenue and no longer has to support the unprofitable company. (A) does not identify a flaw in the proposed policy, because even if the information in (A) were true the proposed policy would still achieve its intended goal.

I hope that helps!
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Re: Public-sector (government-owned) companies are often unprofitable and [#permalink]
Can someone explain why Option B is incorrect? The buyer is intending to only make a profit and not really wanting it to be profitable. How is that not a flaw?
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jyotsnajayaraman6 wrote:
Can someone explain why Option B is incorrect? The buyer is intending to only make a profit and not really wanting it to be profitable. How is that not a flaw?

Hi jyotsnajayaraman6,

The question asks us to find a flaw in the policy proposed in the argument.

What is the policy proposed in the argument: Unprofitable PSCs should be sold to private sector. That way, PSC will either be profitable or close. Please note that both the options are equally desirable.

What would a flaw do- It would tell why unprofitable PSCs should not be sold to private sector.

Now, choice B talks about something that will happen with the buyer after PSC is sold and closed.

Is the policy related to what the buyer will experience? Clearly No.
Buyer makes a profit or loss- does that impact the policy? Clearly No.

The impact of the policy ends as soon as the company is closed.

Hence, choice B is not a flaw in the proposed policy.

Hope that helps,
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jyotsnajayaraman6 wrote:
Can someone explain why Option B is incorrect? The buyer is intending to only make a profit and not really wanting it to be profitable. How is that not a flaw?

As we said in our previous post, the author of the passage is primarily concerned with profitability. The problem with the public sector companies is that they are unprofitable and a drain on the taxpayer. Because of that, the policy suggests that companies be sold to the private sector.

With that in mind, let’s take a look at (B):

Quote:
(B) By buying a public-sector company and then closing the company and selling its assets, a buyer can often make a profit.

According to (B), private-sector buyers can often buy and sell the assets of a public-sector company for a profit. In doing so, the private-sector buyer will ensure that the business will no longer be unprofitable nor will it be a drain on the taxpayer, thus solving the two problems identified by the author. While it’s true that the buyer is simply making a profit and not making the company profitable, the policy allowed for two acceptable outcomes. The company could become efficient and profitable, or it could close. The author is satisfied with either of these outcomes, and (B) produces the latter outcome. So, it does not identify a flaw in the policy proposal. Eliminate (B).

I hope that helps!
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Re: Public-sector (government-owned) companies are often unprofitable and [#permalink]
Quote:
Public-sector (government-owned) companies are often unprofitable and a drain on the taxpayer. Such enterprises should be sold to the private sector, where competition will force them either to be efficient and profitable or else to close.

Which of the following, if true, identifies a flaw in the policy proposed above?

(A) The revenue gained from the sale of public-sector companies is likely to be negligible compared to the cost of maintaining them.
(B) By buying a public-sector company and then closing the company and selling its assets, a buyer can often make a profit.
(C) The services provided by many public-sector companies must be made available to citizens, even when a price that covers costs cannot be charged.
(D) Some unprofitable private-sector companies have become profitable after being taken over by the government to prevent their closing.
(E) The costs of environmental protection, contributions to social programs, and job-safety measures are the same in the public and private sectors.

Kindly explain the reasoning for selecting answer choice C and eliminating A & B.
What logic I am able to apply is the "flaw in the policy" means why public sector co. should not be sold to private sector and as per this I am only able to select A & B and not C.

But it seems my flaw is wrong that is why I am facing trouble but then again I am not able to understand what this flaw is actually suggesting in the question.

Kindly share your knowledge on the same.

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Public-sector (government-owned) companies are often unprofitable and [#permalink]
Quote:
Public-sector (government-owned) companies are often unprofitable and a drain on the taxpayer. Such enterprises should be sold to the private sector, where competition will force them either to be efficient and profitable or else to close.

Which of the following, if true, identifies a flaw in the policy proposed above?

(A) The revenue gained from the sale of public-sector companies is likely to be negligible compared to the cost of maintaining them.
(B) By buying a public-sector company and then closing the company and selling its assets, a buyer can often make a profit.
(C) The services provided by many public-sector companies must be made available to citizens, even when a price that covers costs cannot be charged.
(D) Some unprofitable private-sector companies have become profitable after being taken over by the government to prevent their closing.
(E) The costs of environmental protection, contributions to social programs, and job-safety measures are the same in the public and private sectors.

Kindly explain the reasoning for selecting answer choice C and eliminating A & B.
What logic I am able to apply is the "flaw in the policy" means why public sector co. should not be sold to private sector and as per this I am only able to select A & B and not C.

But it seems my flaw is wrong that is why I am facing trouble but then again I am not able to understand what this flaw is actually suggesting in the question.

Kindly share your knowledge on the same.

KarishmaB

I am no expert but let me know if my explanation helps you.

Conclusion: Govt. should sell such enterprises to the private sector, where competition will force them either (1) to be efficient and profitable or (2) to close.

(A) The revenue gained from the sale of public-sector companies is likely to be negligible compared to the cost of maintaining them.

This strengthens the argument.
If the cost of maintaining these enterprises is high compared to the revenue that is to be gained from a one-time sale, it's better to eliminate that cost as early as possible, especially since the value of the company in the market is likely to be negligible compared to the recurring maintenance costs.

If the profitability angle is a bit hard to understand, think of it this way: if the govt. is incurring losses every month because it has to maintain this loss-making company, once it sells the company, it will stop incurring those losses. Can those losses be reduced in the future? Maybe. But that isn't in the scope of the arg.

(B) By buying a public-sector company and then closing the company and selling its assets, a buyer can often make a profit.

This strengthens the argument.
It doesn't matter whether the buyer (non-govt. entity) makes a profit or loss. The buyer has to either make it efficient and profitable or close as per the conclusion. This option makes the conclusion more likely to be true.

(C) The services provided by many public-sector companies must be made available to citizens, even when a price that covers costs cannot be charged.

This is a flaw in the argument.
This option conveys that the services provided by those public sector companies are essential. If that public sector company is closed, these essential services will not be available to the general public. Hence, the govt. can't sell these companies otherwise they will have to find a new way to support those essential services (even if they are to be provided for free using taxpayers' money)

Let's say that the public enterprise is supposed to maintain a public water dispensary service or a urinal in a public place (let's say near a bus stand). They have the option to charge a fee or they may not (the money will come from taxpayers' pockets). But, if they sell it off to a private entity, the private entity might close it down and the citizens will be affected, leading to the creation of a new public enterprise to provide the same essential service to the general public.

I hope this helps.
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Re: Public-sector (government-owned) companies are often unprofitable and [#permalink]
GMATNinja wrote:
LoneSurvivor wrote:
Can anyone please tell me why A is incorrect ?

If the policy proposed in the passage were adopted, then any unprofitable enterprises would be sold to the private sector. Keep this in mind and take another look at (A):
Quote:
A. The revenue gained from the sale of public-sector companies is likely to be negligible compared to the cost of maintaining them.

Let's say that a certain public enterprise is unprofitable. Under the proposed policy, the government would sell the enterprise to the private sector and earn revenue from that sale. The cost of maintaining the business would then fall on whoever bought it, and not on the government. So, overall, the government would enjoy the revenue from the sale, and would not be responsible for any ensuing costs.

It doesn't matter whether the revenue from the sale is likely to be negligible when compared to the cost of maintaining the company -- the government still earns some revenue and no longer has to support the unprofitable company. (A) does not identify a flaw in the proposed policy, because even if the information in (A) were true the proposed policy would still achieve its intended goal.

I hope that helps!

­Hi GMATNinja AjiteshArun KarishmaB
I had a different reasoning for A- The cost of maintenance is high, then why would a pvt co buy it.
My own counter to the reasoning-
1. Qs is assuming that the govt cos can be sold. We consider the premise as true and never qs it
2. Even if co does buy when maintenance costs are high, isnt it the very crux of a distress sale situation? Pvt co will buy another co at a low price and turn it around to reduce the costs and make it efficient. Nonetheless, the qs is bothered about govt co profits. So not really relevant.

Is my reasoning correct?
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Public-sector (government-owned) companies are often unprofitable and [#permalink]
RenB wrote:
­Hi GMATNinja AjiteshArun KarishmaB
I had a different reasoning for A- The cost of maintenance is high, then why would a pvt co buy it.
My own counter to the reasoning-
1. Qs is assuming that the govt cos can be sold. We consider the premise as true and never qs it
2. Even if co does buy when maintenance costs are high, isnt it the very crux of a distress sale situation? Pvt co will buy another co at a low price and turn it around to reduce the costs and make it efficient. Nonetheless, the qs is bothered about govt co profits. So not really relevant.

Is my reasoning correct?

­Hi RenB,

Yes, that's correct. Privatising a company that costs a lot of money to maintain is likely to help with the {drain on the taxpayer} problem mentioned in the question. This would be true even if the revenue from the sale is low.

Let's assume that the company can be sold for \$1,000 and the annual cost of maintaining it is \$10,000,000. By selling the company, taxpayers no longer have to worry about the -\$10,000,000/year. The government also gets some money (\$1,000).­

The fact that there's a large difference between the two numbers (\$1,000 is negligible compared to \$10,000,000) is actually a good reason to try to sell the company, as it indicates that the company is most likely deeply unprofitable.
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