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Question: In Varisland, when a subscriber of one telecom operator calls a subscriber of a different telecom operator, the latter’s telecom company charges a small connection fee to the originating operator, a fee stipulated by the regulator and same for every operator. Almost all the new telecom operators are enticing customers by charging much lower call rates than charged by the existing operators. Since the connection fee is one of the sources of revenue for new companies, an increase in the fee will significantly improve the financials of the new operators and enable them to compete better in the market.
Which of the following statements is an assumption made by the author?
- The regulator will most probably agree with the author’s recommended course of action
- To improve the financials of the new companies, all the possible sources of revenues should be utilized in the best manner possible.
- One of the goals of the regulator is to make the telecom market highly competitive, which will ensure consumer welfare.
- For the new telecom operators, the connection fee does not form an insignificant proportion of their revenues
- New companies will not have to pay increased connection fee to the existing companies
Answer: C
Explanation
Given that In Varisland, when one telecom operator calls another, the latter's telecom business charges a minor connection fee to the originating operator, a fee set by the regulator and applied to all operators. Almost all new telecom carriers offer lower call rates than incumbent operators to attract customers. Since new enterprises rely on the connection fee for income, raising it will boost their finances and help them compete in the market.
Let's approach the answer choices.
A: Incorrect
This statement is not necessarily an assumption required for the author's argument. The author's argument revolves around the potential impact of increasing the connection fee on the financials of new operators, not on whether the regulator will agree with the author's recommendation.
B: Incorrect
While this statement might be a reasonable business strategy, it is not a necessary assumption for the author's argument about the impact of increasing the connection fee. The argument specifically focuses on the connection fee's contribution to the new operators' financials.
C: Correct
The author's argument hinges on the idea that increasing the connection fee will significantly improve the financials of the new operators. This assumption implies that the connection fee contributes a significant portion of the new operators' revenues. If the connection fee were an insignificant part of their revenues, then increasing it might not have the substantial impact on their financials as suggested in the argument.
D: Incorrect
This statement, if assumed, would actually weaken the author's argument rather than strengthen it. The author's argument relies on the assumption that increasing the connection fee will significantly improve the financials of the new operators.
E: Incorrect
This statement is not directly related to the argument's focus on the financial impact of increasing the connection fee on the new operators. It deals with the cost structure between new and existing companies, rather than the effect on the financials of the new operators themselves.
“In Varisland, when a subscriber of one telecom operator calls a subscriber”– is a GMAT Critical question. To answer the question, a candidate can either find a piece of evidence that would weaken the argument or have logical flaws in the argument. GMAT critical reasoning tests the logical and analytical skills of the candidates. This topic requires candidates to find the argument's strengths and weaknesses or the logical flaw in the argument. The GMAT CR section contains 10 -13 GMAT critical reasoning questions out of 36 GMAT verbal questions
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