During the past year, Pro-Tect Insurance Company's total payouts on car-theft claims were larger than the company can afford to...

GMAT Critical Reasoning : (CR) Questions

Source: Official Guide

Critical Reasoning

Boldface

MEDIUM

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During the past year, Pro-Tect Insurance Company's total payouts on car-theft claims were larger than the company can afford to sustain. Pro-Tect cannot reduce the number of car-theft policies it carries, so cannot protect itself against continued large payouts that way. Therefore, Pro-Tect has decided to offer a discount to holders of car-theft policies whose cars have antitheft devices. Many policyholders will respond to the discount by installing antitheft devices, since the amount of the discount will within two years typically more than cover the cost of installation. Thus, because cars with antitheft devices are rarely stolen, Pro-Tect's plan is likely to reduce its annual payouts.

In the argument above, the two portions in boldface play which of the following roles?

The first rules out a certain strategy for achieving a goal; the second presents the strategy that was adopted instead and whose effectiveness the argument assesses.

The first is a judgment made in support of a certain conclusion; the second is that conclusion.

The first has been used as a consideration to support adopting a certain strategy for achieving a goal; the second reports a decision to adopt an alternative strategy.

The first provides evidence in favor of adopting a certain strategy for achieving a goal; the second reports a decision to pursue an alternative goal.

The first is a consideration offered against adopting a certain strategy for achieving a goal; the second is the main conclusion that the argument is seeking to establish.

Solution

Understanding the Passage

Text from Passage	Analysis
"During the past year, Pro-Tect Insurance Company's total payouts on car-theft claims were larger than the company can afford to sustain."	What it says: Pro-Tect Insurance paid out more money for stolen car claims than they can handle financially. Visualization: Pro-Tect's sustainable payout capacity: $5 million/year → Actual payouts last year: $8 million → Unsustainable loss of $3 million What it does: Establishes the problem that needs to be solved - the company is losing too much money on car theft claims. Source: Author's statement of fact
(Boldface 1) "Pro-Tect cannot reduce the number of car-theft policies it carries"	What it says: The company is unable to decrease how many car theft insurance policies it offers to customers. Visualization: Current policies: 10,000 car-theft policies → Desired reduction: Cannot reduce to 8,000 or fewer → Stuck with all 10,000 policies What it does: Eliminates one potential solution to the financial problem - they can't just reduce their exposure by offering fewer policies. Source: Author's statement of constraint
"so cannot protect itself against continued large payouts that way"	What it says: Since they can't reduce the number of policies, this method won't help them avoid future large payouts. Visualization: Rejected solution path: Reduce policies → Lower payouts → This path is blocked What it does: Confirms that the obvious solution of reducing policies is not available, forcing the need for an alternative approach. Source: Author's logical conclusion
"Therefore"	What it says: Because of the above constraints, the company needs a different solution. What it does: Signals that an alternative solution is about to be presented. Source: Author's transition
(Boldface 2) "Pro-Tect has decided to offer a discount to holders of car-theft policies whose cars have antitheft devices"	What it says: The company chose to give price reductions to customers who have anti-theft systems in their cars. Visualization: Regular premium: $1,200/year → Premium with antitheft device: $900/year → Customer saves $300/year What it does: Presents the alternative solution that Pro-Tect has chosen to address their payout problem. Source: Author's statement of the company's decision
"Many policyholders will respond to the discount by installing antitheft devices, since the amount of the discount will within two years typically more than cover the cost of installation."	What it says: Customers will install these devices because the money they save on premiums will pay for the device cost within two years. Visualization: Antitheft device cost: $500 → Annual discount: $300 → Payback period: $\$500 ÷ \$300 = 1.7 \text{ years}$ → Customer profits after 2 years What it does: Explains why the discount strategy will work - customers have financial incentive to install the devices. Source: Author's prediction
"Thus, because cars with antitheft devices are rarely stolen, Pro-Tect's plan is likely to reduce its annual payouts."	What it says: Since cars with antitheft devices are stolen much less often, the company's plan should lower their yearly claim payments. Visualization: Cars without devices: 50 thefts per 1,000 cars → Cars with devices: 5 thefts per 1,000 cars → Pro-Tect's payouts: $8 million → $2 million per year What it does: Provides the final logical step showing how the discount plan will solve the original financial problem. Source: Author's conclusion

Overall Structure

The author is presenting a business solution to a financial problem. The flow follows: Problem → Constraint that blocks obvious solution → Alternative solution → Why the alternative will work → Final conclusion.

Main Conclusion: Pro-Tect's plan to offer discounts for antitheft devices is likely to reduce its annual payouts.

Boldface Segments

Boldface 1: Pro-Tect cannot reduce the number of car-theft policies it carries
Boldface 2: Pro-Tect has decided to offer a discount to holders of car-theft policies whose cars have antitheft devices

Boldface Understanding

Boldface 1:

Function: States a constraint that prevents the most obvious solution to Pro-Tect's financial problem
Direction: Supports the author's ultimate position by explaining why an alternative solution (the discount plan) was necessary

Boldface 2:

Function: Presents the alternative solution that Pro-Tect chose to address their financial problem
Direction: Supports the author's ultimate position by describing the plan that the author concludes will be successful

Structural Classification

Boldface 1:

Structural Role: Constraint or limiting factor that necessitates finding an alternative solution
Predicted Answer Patterns: "constraint that necessitates," "limitation that requires," "factor that makes necessary"

Boldface 2:

Structural Role: The proposed solution that the author evaluates and endorses
Predicted Answer Patterns: "solution that the author supports," "plan that the author concludes will work," "strategy that the argument endorses"

Answer Choices Explained

The first rules out a certain strategy for achieving a goal; the second presents the strategy that was adopted instead and whose effectiveness the argument assesses.

"The first rules out a certain strategy for achieving a goal" - ✓ CORRECT - Boldface 1 eliminates the strategy of reducing the number of policies to achieve the goal of reducing payouts; "the second presents the strategy that was adopted instead and whose effectiveness the argument assesses" - ✓ CORRECT - Boldface 2 introduces the discount plan as the alternative strategy, and the rest of the argument evaluates why this plan will work

The first is a judgment made in support of a certain conclusion; the second is that conclusion.

"The first is a judgment made in support of a certain conclusion" - ✗ WRONG - Boldface 1 doesn't support a conclusion; it states a constraint that blocks a potential solution; "the second is that conclusion" - ✗ WRONG - Boldface 2 is not the conclusion; it's the strategy being proposed. The conclusion is that the plan will likely reduce payouts

The first has been used as a consideration to support adopting a certain strategy for achieving a goal; the second reports a decision to adopt an alternative strategy.

"The first has been used as a consideration to support adopting a certain strategy for achieving a goal" - ✗ WRONG - Boldface 1 doesn't support adopting any strategy; it rules out the strategy of reducing policies; "the second reports a decision to adopt an alternative strategy" - ✓ CORRECT - Boldface 2 does report Pro-Tect's decision to offer discounts

The first provides evidence in favor of adopting a certain strategy for achieving a goal; the second reports a decision to pursue an alternative goal.

"The first provides evidence in favor of adopting a certain strategy for achieving a goal" - ✗ WRONG - Boldface 1 doesn't provide evidence for adopting a strategy; it states why they can't adopt the obvious strategy; "the second reports a decision to pursue an alternative goal" - ✗ WRONG - Boldface 2 doesn't introduce an alternative goal; the goal remains the same (reducing payouts), but it's an alternative strategy

The first is a consideration offered against adopting a certain strategy for achieving a goal; the second is the main conclusion that the argument is seeking to establish.

"The first is a consideration offered against adopting a certain strategy for achieving a goal" - ✗ WRONG - While this might seem plausible, Boldface 1 doesn't argue against reducing policies; it states they cannot do so (it's not an option); "the second is the main conclusion that the argument is seeking to establish" - ✗ WRONG - Boldface 2 presents the strategy, not the conclusion. The main conclusion is that this strategy will likely reduce payouts

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