Southern Haul Cargo Railway owns all of the railroad tracks in the cit

Question

Southern Haul Cargo Railway owns all of the railroad tracks in the city of Woe-be-gone, Idaho. Because of Woe-be-gone's sudden population explosion, Southern Haul Cargo is planning to make a Metropolitan Rail and Subway system using its pre-existing tracks. The city council has concluded, however, that if the cargo railway were to offer subway transport, the transport system would have an unfair advantage over the city's existing bus routes, because Southern Haul Cargo's subway system could be subsidized by the profits of their monopoly on cargo transport.

Which of the following, if true, would ease the city's fear of unfair competition?

A In order to use existing tracks for a passenger transport system, the cargo railway would need to modernize tracks and build stations, a process so expensive it would virtually wipe out all the profit from their monopoly for the foreseeable future.
 
B If the cargo railway were to offer subway transport within a particular area, it would have a monopoly within that area.
 
C The cost of transport by railway-tracks, whether provided by trains or subway, rises only marginally as more passengers use this form of transport.
 
D Bus transport is available for the same subway routes and costs much less. However, it is much slower.
 
E Subway transport will never be able to compete with automobile transport, especially as more people have cars now than ever before.

Kritisood · Answer

I understand why A is correct, but why is D incorrect?

gmatdordie · Answer

Bus transport is available for the same subway routes and costs much less. However, it is much slower

argument indicates that bus transport is good as well as bad, for above stated reasons, it do not necessarily weakens the proposed subway argument
So D is incorrect

SpicyBourbon · Answer

I don't agree that A is the right answer, it simply restates the bait for the city's concern. The city's concern is that Southern Haul will have unfair competition and subsidize the subway with its monopoly power of hauling cargo. That's exactly what's happening in answer A with Southern Haul using its cargo profits to build out a subway system.

From stem: "The city council has concluded, however, that if the cargo railway were to offer subway transport, the transport system would have an unfair advantage over the city's existing bus routes, because  Southern Haul Cargo's subway system could be subsidized by the profits of their monopoly on cargo transport ."

A) In order to use existing tracks for a passenger transport system, the cargo railway would need to modernize tracks and build stations, a process so expensive it would virtually wipe out all the profit from their monopoly for the foreseeable future.

D) is more correct since it at least shows that busses have some competitive advantages compared to the subway...

Naila02 · Answer

Kritisood , could you please explain why A is correct? I chose  C

indrajeet999 · Answer

Here the main issue is subsidizing passenger ticket fair of south haul cargo's subway system once it is introduced in the city. 
If the organization uses all it's profits ,which was earned through different source , building stations and modernizing tracks , there won't be any money left to subsidize the ticket fair of new subway system introduced.

indrajeet999 · Answer

Option C actually weakens the argument

davro · Answer

Option D is wrong because we don't know whether the lower cost would be good enough to beat the subsidy of the monopoly of the rail company, and we also have the variable of the higher time (not good enough). Remember that the conclusion is that if the cargo railway were to offer subway transport, and the transport system would have an unfair advantage over the bus routes, because the rail company could be subsidized by its monopoly. On the other hand, A is clearly saying that there would be other costs that even with a monopoly there is no chance for profits (winner).

AnirudhaS · Answer

C The cost of transport by railway-tracks, whether provided by trains or subway, rises only marginally as more passengers use this form of transport.

Let us say 100 passengers pay $10 each. Cost of transport facility say is $500. Total profit = $500
If C is correct, situation may be like this
Let us say 200 passengers pay $10 each. Cost of transport marginally rises to $550. Total profit = $1450

So it only makes the case for more profitability of Southern Haul Cargo Railway and in fact makes the existing monopolistic situation even more unfair. This option would INCREASE city's fear of unfair competition.

Hope this helps.

rajshreeasati · Answer

This was a tough one, really mirroring OG question I think

P - SHC install subway on existing tracks C - But, city says unfair advantage over bus. Why? - SHC will use its huge profit from Monopoly, and thus it will make Subway cheaper than buses. Prethinking - we need to weaken the claim of the city council, ie. even if they put in all that huge profit from their monopoly, the subway tickets wont be chaper than bus tickets. This is what will ease their fear. A In order to use existing tracks for a passenger transport system, the cargo railway would need to modernize tracks and build stations, a process so expensive it would virtually wipe out all the profit from their monopoly for the foreseeable future. - Exactly - If all their profit will go in modernizing the tracks, they wont be able to use those profit to make subway cheaper than buses. Thus Correct! B If the cargo railway were to offer subway transport within a particular area, it would have a monopoly within that area. = even with monopoly, they will provide expensive tickets than bus tickets, hence Opposite! C The cost of transport by railway-tracks, whether provided by trains or subway, rises only marginally as more passengers use this form of transport. - What about buses? Are these train costs still cheaper than buses or expensive than bus tickets? Dont know. Out of Scope. D Bus transport is available for the same subway routes and costs much less. However, it is much slower. - Slower or faster how does it matter. Out of Scope and doesnt impact claim. E Subway transport will never be able to compete with automobile transport, especially as more people have cars now than ever before. = Totally Irrelevant

DmitryFarberMPrep · Answer

This is not a valid CR, and is definitely not one of ours!  Sajjad1994 , I hope you will remove the tag.

The GMAT will not expect us to bring in knowledge of what constitutes a monopoly or which elements of a business are more advantageous. Neither A nor D clearly addresses the idea of unfair competition. A just gives a financial disadvantage for the rail company. Since the argument is not about profit, this is completely irrelevant. (If you want to get real-world, recall that companies such as Amazon and Netflix rose to prominence by foregoing profits for years in order to sweep competitors out of business.) D gives tradeoffs of taking the bus vs the train, but it doesn't give us any guidance on which considerations are more important, or whether the competition from the train would be unfair.

Southern Haul Cargo Railway owns all of the railroad tracks in the cit

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Southern Haul Cargo Railway owns all of the railroad tracks in the cit

Prep Toolkit

615 to 715 in 15 Days (Ria's Strategies)

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