To facilitate development of telephone service in a rural province, the national government pays the provincial government a subsidy for...

GMAT Critical Reasoning : (CR) Questions

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Critical Reasoning

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To facilitate development of telephone service in a rural province, the national government pays the provincial government a subsidy for each long-distance call going into the province. A corporation has offered to base a national long-distance telephone service in the province, allowing long-distance calls to be made without any charge to the callers, if the provincial government splits its subsidy with the corporation. The corporation argues that since all calls would be routed through the province, the provincial government would profit greatly from this arrangement.

The corporation's prediction about the effects its plan would have, if adopted, relies on which of the following assumptions?

Without the plan, all long-distance telephone service in the province would involve at least some charges to callers.

The national government's subsidy would apply not only for calls made to phones in the province, but to at least some long-distance calls that are merely routed through the province.

The provincial government would be interested in splitting its subsidy with the corporation only if doing so would yield significant profits for the province.

The national government's subsidy for any long-distance call into the province is calculated as a fixed percentage of the charge to the caller.

In order for the arrangement to be profitable for the province, the province must receive more from the increased subsidy than it pays the corporation.

Solution

Passage Analysis:

Text from Passage	Analysis
To facilitate development of telephone service in a rural province, the national government pays the provincial government a subsidy for each long-distance call going into the province.	What it says: The national government gives money to the provincial government for every long-distance call that comes into the rural province What it does: Sets up the background situation showing how the current subsidy system works What it is: Background context about existing policy
A corporation has offered to base a national long-distance telephone service in the province, allowing long-distance calls to be made without any charge to the callers, if the provincial government splits its subsidy with the corporation.	What it says: A company wants to set up phone service there and make calls free for users, but wants the province to share the subsidy money with them What it does: Introduces the corporation's proposal that would change the current subsidy arrangement What it is: Corporation's proposal/offer Visualization: Current: Province gets $10 per call → Proposed: Province gets $5, Corporation gets $5 per call
The corporation argues that since all calls would be routed through the province, the provincial government would profit greatly from this arrangement.	What it says: The company claims the province would make much more money because all calls would go through their province What it does: Presents the corporation's reasoning for why their proposal benefits the province despite splitting the subsidy What it is: Corporation's argument/prediction Visualization: Current: $100 \text{ calls} \times \$10 = \$1,000$ → Proposed: $1,000 \text{ calls} \times \$5 = \$5,000$ ($5\times$ increase)

Argument Flow:

The passage starts by explaining the current subsidy system, then presents the corporation's proposal to change it, and ends with the corporation's argument for why this change would benefit the province despite reducing the per-call subsidy amount.

Main Conclusion:

The corporation predicts that the provincial government would profit greatly from their proposed arrangement where calls are routed through the province in exchange for splitting the subsidy.

Logical Structure:

The corporation's argument relies on the idea that routing all calls through the province would generate enough volume to offset the reduced per-call subsidy rate. Their prediction assumes that the increased call volume would more than compensate for getting only half the subsidy per call.

Prethinking:

Question type:

Assumption - We need to find what the corporation is taking for granted when they predict the province will profit greatly from their plan

Precision of Claims

The corporation's prediction is about quantity (greatly increased profit) based on activity (routing all calls through the province) with a quality assumption (that more calls will actually happen)

Strategy

Look for ways the corporation's prediction could fail while keeping the facts in the argument true. The corporation assumes that splitting the subsidy is worth it because call volume will increase dramatically. We need to identify what must be true for their math to work out - essentially what could go wrong with their 'more calls = more total money' logic

Answer Choices Explained

Without the plan, all long-distance telephone service in the province would involve at least some charges to callers.

This focuses on whether calls currently have charges, but this doesn't affect the corporation's core prediction about profitability. The corporation's argument is about increasing call volume through routing, not about the current pricing structure. Whether existing calls have charges or not doesn't impact whether the province will profit from the new routing arrangement.

The national government's subsidy would apply not only for calls made to phones in the province, but to at least some long-distance calls that are merely routed through the province.

This is essential for the corporation's prediction to work. The corporation claims profit will come from 'all calls being routed through the province,' but currently subsidies only apply to calls 'going into the province.' If the national government doesn't pay subsidies for calls merely routed through (as opposed to calls destined for the province), then routing more calls wouldn't generate any additional subsidy revenue. This assumption must be true for the corporation's prediction to make sense.

The provincial government would be interested in splitting its subsidy with the corporation only if doing so would yield significant profits for the province.

This describes the province's motivation for considering the deal, but it doesn't address what must be true for the corporation's prediction about profitability to be accurate. The corporation's argument stands or falls based on whether routing generates subsidies, not on the province's decision-making criteria.

The national government's subsidy for any long-distance call into the province is calculated as a fixed percentage of the charge to the caller.

The calculation method for subsidies (fixed percentage vs. other methods) doesn't affect whether the corporation's core prediction is sound. Whether subsidies are calculated as percentages or fixed amounts, the fundamental question remains whether routing calls through the province generates subsidy revenue at all.

In order for the arrangement to be profitable for the province, the province must receive more from the increased subsidy than it pays the corporation.

This is more of a logical consequence than an assumption. It's basically restating that for the arrangement to be profitable, revenues must exceed costs - but this doesn't identify what the corporation is specifically assuming about how their routing plan will generate those revenues in the first place.

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