GMAT Club World Cup 2022 (DAY 7): Selta is a middle sized automobile c

Question

Selta is a middle sized automobile company, which is currently spending a lot in developing an environment friendly variation of its existing vehicle that runs on diesel. However, the market now needs electric vehicles, which are more environmentally friendly than diesel vehicles, and hence the profit margin from selling electric vehicles is much higher than that from selling diesel vehicles.

Which of the following options, if true, gives an economic explanation for Selta's investments in the less profitable vehicle of the two mentioned in the passage above?

A. Electric vehicles are not as environmentally friendly as generally thought, because they are charged by sources that burn diesel to generate electricity.

B. Selta’s management is led by people who are not very concerned about developing environmentally friendly technologies.

C. The R&D team in Selta has a thorough knowledge in development of diesel engines.

D. Electric vehicles are practically maintenance free, whereas diesel vehicles need periodic maintenance including replacement of costly spare parts.

E. The diesel vehicles can also incorporate the safety features typically available in electrical vehicles.

Thank you  sayantanc2k  for the question!!!

V36-18

Bunuel · Answer

GMAT CLUB Official Explanation:

A. This option shows a disadvantage of electric vehicles from an environmental perspective. However this option has no bearing on the economic aspect. Since it is required to find an economic explanation, this option is irrelevant.

B. This option may provide an explanation why Selta is investing in diesel vehicles rather than electric vehicles, but an  economic  explanation is required.

C. This option may give an explanation why developing diesel vehicles may be more convenient for Selta to develop than one might otherwise think it to be. However it is already stated in the passage that electrical vehicles are more profitable than diesel vehicles and hence this option does not provide an explanation why even then Selta is investing in diesel vehicles.

D. Correct.  This option gives an explanation how diesel vehicles can be more profitable than electric vehicles. Selta might be banking on the profits from the after sales service and sale of spare parts.

E. This option is irrelevant because the question is about an economic explanation and not safety features.

Archit3110 · Answer

IC : Selta is a middle sized automobile company, which is currently spending a lot in developing an environment friendly variation of its existing vehicle that runs on diesel
Conclusion market now needs electric vehicles, which are more environmentally friendly than diesel vehicles, and hence the profit margin from selling electric vehicles is much higher than that from selling diesel vehicles.

need to find an economic explanation for Selta's investments in the less profitable vehicle of the two mentioned in the passage above

A. Electric vehicles are not as environmentally friendly as generally thought, because they are charged by sources that burn diesel to generate electricity.  not relevant

B. Selta’s management is led by people who are not very concerned about developing environmentally friendly technologies.
  not relevant
 C. The R&D team in Selta has a thorough knowledge in development of diesel engines.  not relevant

D. Electric vehicles are practically maintenance free, whereas diesel vehicles need periodic maintenance including replacement of costly spare parts.  ; correct if Selta develops an environmental friendly version and if successful then it would be more profitable in the long run as its parts would be replaced at a cost

E. The diesel vehicles can also incorporate the safety features typically available in electrical vehicles.
  not relevant

OPTION D is correct

VelvetThunder · Answer

ANSWER D

Conclusion:  the profit margin from selling electric vehicles is much higher than that from selling diesel vehicles

Counter Premise:  Selta is spending a lot in developing an environment friendly variation of its existing vehicle that runs on diesel.

Premise:  the market now needs electric vehicles, which are more environmentally friendly than diesel vehicles

Gap: Selta is spending a lot on its diesel variant rather than electric vehicles, this must be   because there's some other benefit/profit Selta is hoping to make

A. Electric vehicles are not as environmentally friendly as generally thought, because they are charged by sources that burn diesel to generate electricity.  This is a close one. Electric vehicles not being environmentally friendly could possibly be a reason why Selta is not investing in those, but still, this does NOT explain about how they intend on making profits from diesel variant.

B. Selta’s management is led by people who are not very concerned about developing environmentally friendly technologies.  This doesn't explain why Selta is spending on its diesel variant

C. The R&D team in Selta has a thorough knowledge in development of diesel engines.  Just because it has an experienced R&D team, doesn't explain why Selta is spending on its diesel variant

D. Electric vehicles are practically maintenance free, whereas diesel vehicles need periodic maintenance including replacement of costly spare parts.  CORRECT, Selta hopes to make profit margin by replacing spare parts

E. The diesel vehicles can also incorporate the safety features typically available in electrical vehicles.  Safety features are irrelevant to the conclusion here

gmatophobia · Answer

We are asked to find an  economic explanation  for Selta's investments in the less profitable vehicle.

A. Electric vehicles are not as environmentally friendly as generally thought, because they are charged by sources that burn diesel to generate electricity.

Doesn't give any economic advantage. Hence eliminate.

B. Selta’s management is led by people who are not very concerned about developing environmentally friendly technologies.

Doesn't give any economic advantage. Hence eliminate.

C. The R&D team in Selta has a thorough knowledge in development of diesel engines.

While tempting, we dont know if the knowledge that they have can turn out any economic gains for the company. Hence eliminate

D. Electric vehicles are practically maintenance free, whereas diesel vehicles need periodic maintenance including replacement of costly spare parts.

This seems correct. The company plans to gain from repairs

E. The diesel vehicles can also incorporate the safety features typically available in electrical vehicles.

Doesn't give any economic advantage. Hence eliminate.

IMO D

soudipsengupta · Answer

A. Electric vehicles are not as environmentally friendly as generally thought, because they are charged by sources that burn diesel to generate electricity.
  INCORRECT  . This statement goes directly against one of the premises of the argument. So this cannot be an economic explanation for Selta's investments in the less profitable vehicle of the two.

B. Selta’s management is led by people who are not very concerned about developing environmentally friendly technologies.
  INCORRECT  . What Selta’s management is concerned about is not a point in argument. This has no relevance to the argument

C. The R&D team in Selta has a thorough knowledge in development of diesel engines.
  INCORRECT  . It may be the case that R&D team in Selta has a thorough knowledge in development of diesel engines, but this does not give an economic explanation as to chose diesel cars over electric cars. It could very well be the case that Selta's R&D team also has thorough knowledge in development of electric engines.

D. Electric vehicles are practically maintenance free, whereas diesel vehicles need periodic maintenance including replacement of costly spare parts.
  CORRECT  . If diesel vehicles needs periodic maintenance including replacement of costly spare parts, then there is a valid explanation why Selta may decide on choosing diesel engines over electric engines. They would enjoy continuous business in the form of returning customers for maintenance of their vehicles, which in case they produced diesel engines will not happen.

E. The diesel vehicles can also incorporate the safety features typically available in electrical vehicles.
  INCORRECT  . What this statement says is that safety features in diesel engines can match that of electrical vehicles. But does this give Selta an economic reason to choose diesel engine over electric engine ? .. No.

manish1708 · Answer

Answer: D

Selta is a middle sized automobile company, which is currently spending a lot in developing an environment friendly variation of its existing vehicle that runs on diesel. However, the market now needs electric vehicles, which are more environmentally friendly than diesel vehicles, and hence the profit margin from selling electric vehicles is much higher than that from selling diesel vehicles.

Which of the following options, if true, gives an economic explanation for Selta's investments in the less profitable vehicle of the two mentioned in the passage above?

We are looking for an option which will explain how Selta will be able to generate more profits by developing an environment friendly variation of existing vehicle than by inventing in electric vehicle.

A. Electric vehicles are not as environmentally friendly as generally thought, because they are charged by sources that burn diesel to generate electricity.  --> Incorrect. This provides an environment friendly explanation and not an economic explanation.

B. Selta’s management is led by people who are not very concerned about developing environmentally friendly technologies.  --> Incorrect. goes against the premise that Selta is spending on developing environment friendly variation of existing vehicle.

C. The R&D team in Selta has a thorough knowledge in development of diesel engines.  --> Incorrect. R&D teams knowledge is out of scope for economic explanation.

D. Electric vehicles are practically maintenance free, whereas diesel vehicles need periodic maintenance including replacement of costly spare parts.  -->  Correct . This provides an economic explanation on why Selta is investing on developing a variation when profit margin on electric vehicle is high. Profit on selling electric vehicle is one time deal whereas with environment friendly diesel vehicle Selta will be able to generate money on a regular periodic basis based on maintenance and replacement of spare parts. In long term, variation of diesel vehicle makes sense to generate more money.

E. The diesel vehicles can also incorporate the safety features typically available in electrical vehicles.  --> Incorrect. Safety features are out of scope.

av1901 · Answer

Although demand is for electric vehicles and hence more profit as well, Selta is still spending a lot of money developing an environmentally friendly diesel engine car. Why? For what possible economic reason?
Let us examine the answer choices

A. Electric vehicles are not as environmentally friendly as generally thought, because they are charged by sources that burn diesel to generate electricity.

First of all, does not give any economic explanation and secondly, it is irrelevant because question is about Selta and their investment, not about electric vehicles' environmental friendliness. ELIMINATE

B. Selta’s management is led by people who are not very concerned about developing environmentally friendly technologies.

Again, nothing economic in here and also incorrect because Selta is developing an environment friendly diesel engine. ELIMINATE

C. The R&D team in Selta has a thorough knowledge in development of diesel engines.

They might but nothing mentioned here about their knowledge on electric engines and also nothing about economics. ELIMINATE

D. Electric vehicles are practically maintenance free, whereas diesel vehicles need periodic maintenance including replacement of costly spare parts.

HERE! Selta is developing environment friendly diesel engines to keep in norm with environment and also safeguarding their future income from after sales maintenance. Electric vehicles might give initial extra profit but since they require no maintenance, they will not bring in sustained revenue, which diesel engines will. ANSWER

E. The diesel vehicles can also incorporate the safety features typically available in electrical vehicles.

It is a point but not economic in nature and irrelevant to the question asked. ELIMINATE

Answer - D

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GMAT Club World Cup 2022 (DAY 7): Selta is a middle sized automobile c

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