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bhanu29
GMAT Forum Director
Joined: 02 Oct 2024
Last visit: 02 Sep 2026
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Location: India
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Products:
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Posts: 797
09 Feb 2026, 03:15
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Excerpts from report from consultant to city official, dated August 12
The pilot program to install credit card readers and LCD screens in a small number of city taxis has been a qualified success. Initially, drivers worried about the 3% processing fee per transaction (levied on both fare and tip), while the taxi companies were concerned about the ability of riders to contest charges, as well as possible reliability issues leading to high maintenance costs.
Nevertheless, once the systems were in place, drivers were pleased by the average increase in tips from 10% to 25% (added to the fare), while the potential for additional advertising revenue (via the screens) thrilled the companies.
Since the pilot program paid for installation, it's unclear how taxi companies will react to the $450 installation cost once they must pay it. I would hazard that this cost will pose a significant obstacle to widespread adoption, despite the eventual economic benefits of the readers and screens. It should be noted, though, that none of the pilot participants returned the systems after the program; all signed up for zero-interest plans to pay back the installation cost over 6 months.
The pilot program to install credit card readers and LCD screens in a small number of city taxis has been a qualified success. Initially, drivers worried about the 3% processing fee per transaction (levied on both fare and tip), while the taxi companies were concerned about the ability of riders to contest charges, as well as possible reliability issues leading to high maintenance costs.
Nevertheless, once the systems were in place, drivers were pleased by the average increase in tips from 10% to 25% (added to the fare), while the potential for additional advertising revenue (via the screens) thrilled the companies.
Since the pilot program paid for installation, it's unclear how taxi companies will react to the $450 installation cost once they must pay it. I would hazard that this cost will pose a significant obstacle to widespread adoption, despite the eventual economic benefits of the readers and screens. It should be noted, though, that none of the pilot participants returned the systems after the program; all signed up for zero-interest plans to pay back the installation cost over 6 months.
200
Be sure to select an answer first to save it in the Error Log before revealing the correct answer (OA)!
Difficulty:
75%
(hard)
Question Stats:
42% (03:52) correct
58%
(03:31)
wrong
based on 356
sessions
History
Date
Time
Result
Not Attempted Yet
How many $20 fares would cover the cost of installation solely from the increase in tips (pre-tax but after transaction fees)?
| 200 | |
| 225 | |
| 250 | |
| 275 | |
| 300 |
In making his or her case to subsidize installations, the city official cites none of the benefits described in the report.: YES
The potential use of the LCD screens as an advertising medium is of interest to both drivers and taxi companies.: NO
Both the city official and the commissioner expect that tax reporting of tips would improve with the new systems.: YES
Be sure to select an answer first to save it in the Error Log before revealing the correct answer (OA)!
Difficulty:
95%
(hard)
Question Stats:
12% (01:34) correct
88%
(01:42)
wrong
based on 685
sessions
History
Date
Time
Result
Not Attempted Yet
For each of the following statements, select Yes if the statement can be shown to be true using the information provided. Otherwise, select No.
| YES | NO | |
| In making his or her case to subsidize installations, the city official cites none of the benefits described in the report. | ||
| The potential use of the LCD screens as an advertising medium is of interest to both drivers and taxi companies. | ||
| Both the city official and the commissioner expect that tax reporting of tips would improve with the new systems. |
ShowHide Answer
Official Answer
In making his or her case to subsidize installations, the city official cites none of the benefits described in the report.: YES
The potential use of the LCD screens as an advertising medium is of interest to both drivers and taxi companies.: NO
Both the city official and the commissioner expect that tax reporting of tips would improve with the new systems.: YES
Even after deduction of the transaction fee, the average pre-tax revenue per fare (including tips) is more than 11% higher with the new card readers than before.: NO
For a taxi fare to be legal, the meter must be turned on.: YES
The average fleet size per company is greater than 15 taxis.: NO
Be sure to select an answer first to save it in the Error Log before revealing the correct answer (OA)!
Difficulty:
85%
(hard)
Question Stats:
44% (01:48) correct
56%
(01:51)
wrong
based on 472
sessions
History
Date
Time
Result
Not Attempted Yet
For each of the following statements, select Yes if the statement can be shown to be true using the information provided. Otherwise, select No.
| YES | NO | |
| Even after deduction of the transaction fee, the average pre-tax revenue per fare (including tips) is more than 11% higher with the new card readers than before. | ||
| For a taxi fare to be legal, the meter must be turned on. | ||
| The average fleet size per company is greater than 15 taxis. |
ShowHide Answer
Official Answer
Even after deduction of the transaction fee, the average pre-tax revenue per fare (including tips) is more than 11% higher with the new card readers than before.: NO
For a taxi fare to be legal, the meter must be turned on.: YES
The average fleet size per company is greater than 15 taxis.: NO
suburbMBA
Joined: 02 Dec 2025
Last visit: 25 Mar 2026
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Location: India
Schools: Booth '27 CBS '27 Kellogg '27 Haas '27 INSEAD Aug '27 Judge '28 LBS '27 Ross '27 Anderson '27 FT MBA '27 Stern '27 Yale '27
GPA: 3.95/4
09 Feb 2026, 05:39
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For Question 2(c), does the commissioner not explicitly say that he has doubts over the ability of card readers to improve tax reporting of fares? Why is the answer YES? Is there something to be inferred from his next sentence that I've missed?
09 Feb 2026, 07:02
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bhanu29 Could you post the solution for Question 1?
bhanu29
GMAT Forum Director
Joined: 02 Oct 2024
Last visit: 02 Sep 2026
Posts: 797
Given Kudos: 745
Location: India
Schools: Anderson '27 Booth '27 Foster '27 Haas '27 Ross '27 Tepper '27 Stanford '27 CBS '27 NYU Stern Johnson (Cornell) McCombs '27 Kellogg '27 Sloan '27
GMAT Focus 1: 675 Q87 V85 DI79
GMAT Focus 2: 715 Q87 V84 DI86
GPA: 9.11
WE:Engineering (Technology)
Products:
Schools: Anderson '27 Booth '27 Foster '27 Haas '27 Ross '27 Tepper '27 Stanford '27 CBS '27 NYU Stern Johnson (Cornell) McCombs '27 Kellogg '27 Sloan '27
GMAT Focus 2: 715 Q87 V84 DI86
Posts: 797
09 Feb 2026, 08:48
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Quote:
The increase in tip percentage from 10% to 25% is 15%. On a $20 fare, 15% is $3. The transaction fee of 3% is levied on both fare and tip ($20 + 25%, or $5, for a total of $25), and 3% of $25 is $0.75. Thus, the increase in tips, less the transaction fee, is $3 – $0.75 = $2.25.
To cover a $450 installation cost, you divide $450 by $2.25 to get 200 fares.
Quote:
Statement 1: Yes. The city official does not cite any of the benefits described in the report. The consultant discusses how the new systems benefit drivers and taxi companies. In contrast, the city official only mentions how the new systems could benefit the city government (better tax collections) and riders.
Statement 2: No . You know that the potential for advertising revenue (through the screens) interests the companies (in fact, it “thrilled” them), but you aren’t told whether this interests the drivers.
Statement 3: Yes. The commissioner only disagrees with the official’s expectation that tax reporting of fares would improve. In fact, the commissioner makes this contrast very explicit by emphasizing the word fares, and then goes on to say that “your other points... are well taken.” So you can conclude that the commissioner also expects that tax reporting of tips would improve with the new systems. (The official has already come out and said as much.)
Quote:
Statement 1: No. Call a fare F . Under the old system, the pre-tax revenue per fare is F + 10% of F, or 1.1 F.
Under the new system, the pre-tax revenue per fare seems to be F + 25%, or 1.25 F, but then you have to subtract 3%, or multiply by 0.97:
1.25 F(0.97) = 1.2125 F.
Now, you have to figure out how much greater (percent-wise) this second number is than the first. What percent increase gets you from 1.1 F to 1.2125 F? The answer is ~10.2% (1.12125 divided by 1.1 is 1.10227..), which is NOT greater than 11%.
Statement 2: Yes. The commissioner specifically says that “if the meter is turned off, the driver can only accept an illegal fare.” In other words, all fares that are accepted with the meter turned off are illegal. So then you have to turn the meter on for a fare to be legal. Doing so doesn’t guarantee that a fare is legal (there are probably ways to have an illegal fare happen with the meter on), but you can’t have a legal fare without the meter on.
Statement 3: No. The average loan size that the commissioner predicts is $6,000—that’s the amount to cover “the full cost for the average fleet.” Since the installation cost is $450, the average fleet size must be $6,000 divided by $450, or 13.3 taxis. This number is not greater than 15 taxis.
