For similar cars and drivers, automobile insurance for collision damage has always cost more in Greatport than in Fairmont. Police...

GMAT Critical Reasoning : (CR) Questions

Source: Official Guide

Critical Reasoning

Assumption

MEDIUM

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Notes

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For similar cars and drivers, automobile insurance for collision damage has always cost more in Greatport than in Fairmont. Police studies, however, show that cars owned by Greatport residents are, on average, slightly less likely to be involved in a collision than cars in Fairmont. Clearly, therefore, insurance companies are making a greater profit on collision-damage insurance in Greatport than in Fairmont.

Which of the following is an assumption on which the argument depends?

Repairing typical collision damage does not cost more in Greatport than in Fairmont.

There are no more motorists in Greatport than in Fairmont.

Greatport residents who have been in a collision are more likely to report it to their insurance company than Fairmont residents are.

Fairmont and Greatport are the cities with the highest collision-damage insurance rates.

The insurance companies were already aware of the difference in the likelihood of collisions before the publication of the police reports.

Solution

Passage Analysis:

Text from Passage	Analysis
For similar cars and drivers, automobile insurance for collision damage has always cost more in Greatport than in Fairmont.	What it says: Insurance costs more in Greatport than Fairmont for comparable situations What it does: Sets up a basic comparison between two cities' insurance costs What it is: Author's factual premise Visualization: Greatport insurance: $800/year, Fairmont insurance: $600/year
Police studies, however, show that cars owned by Greatport residents are, on average, slightly less likely to be involved in a collision than cars in Fairmont.	What it says: Greatport has fewer accidents than Fairmont according to police data What it does: Introduces contradictory evidence that challenges what we'd expect from the cost difference What it is: Police study findings Visualization: Greatport collision rate: 8%, Fairmont collision rate: 10%
Clearly, therefore, insurance companies are making a greater profit on collision-damage insurance in Greatport than in Fairmont.	What it says: Insurance companies make more money in Greatport than Fairmont What it does: Draws a conclusion from the apparent contradiction between higher costs and lower risk What it is: Author's main conclusion Visualization: Greatport profit margin: 40%, Fairmont profit margin: 25%

Argument Flow:

The argument starts with a cost comparison, then introduces contradictory accident data, and concludes that this contradiction must mean higher profits in the more expensive city.

Main Conclusion:

Insurance companies make more profit on collision insurance in Greatport than in Fairmont.

Logical Structure:

The logic connects higher costs + lower accident rates = higher profits. However, this assumes that the only factors affecting insurance costs are accident rates and profit margins, ignoring other potential cost differences between the cities.

Prethinking:

Question type:

Assumption - We need to find what the argument must assume to be true for the conclusion to hold. We're looking for unstated premises that are necessary for the logic to work.

Precision of Claims

The argument makes specific quantitative comparisons: insurance costs MORE in Greatport, collision rates are SLIGHTLY LESS in Greatport, and profit is GREATER in Greatport. These are relative comparisons between two specific cities.

Strategy

The argument concludes higher profits in Greatport based on higher premiums + lower accident rates. To find assumptions, we need to identify what could break this logic while accepting the given facts. We'll look for gaps in reasoning about what determines insurance company profits beyond just premiums and accident frequency.

Answer Choices Explained

Repairing typical collision damage does not cost more in Greatport than in Fairmont.

This is the correct answer. The argument assumes that repair costs are not higher in Greatport. If repair costs WERE significantly higher in Greatport, this would provide an alternative explanation for why insurance premiums are higher there - the insurance companies would need to charge more to cover the higher repair costs, not necessarily because they're making more profit. This assumption is necessary for the conclusion to hold because without it, we can't definitively say higher premiums plus lower collision rates equals higher profits.

There are no more motorists in Greatport than in Fairmont.

This choice about the number of motorists is irrelevant to the argument. The argument is about profit margins per policy, not total volume of business. Whether there are more or fewer motorists in either city doesn't affect whether insurance companies make more profit per policy in Greatport. The argument's logic about collision rates and premiums works regardless of the total number of customers.

Greatport residents who have been in a collision are more likely to report it to their insurance company than Fairmont residents are.

This actually works against the argument's conclusion. If Greatport residents were more likely to report collisions, this could mean that despite the lower overall collision rate shown in police studies, insurance companies in Greatport might actually face higher claim rates. This would make it less likely that they're making higher profits, not more likely.

Fairmont and Greatport are the cities with the highest collision-damage insurance rates.

The argument only compares Greatport and Fairmont to each other, not to any other cities. Whether these two cities have the highest rates compared to other cities is completely irrelevant to determining which city generates more profit for insurance companies. The relative comparison between just these two cities is sufficient for the argument's logic.

The insurance companies were already aware of the difference in the likelihood of collisions before the publication of the police reports.

Whether insurance companies knew about the collision rate differences before the police reports is irrelevant to the current profit analysis. The argument is making a conclusion about current profit levels based on current data (higher premiums, lower collision rates). The timing of when companies became aware of this information doesn't affect the logical relationship between these factors and current profitability.

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