Due to high Jet fuel-CR

[lsegal]

Due to high jet fuel costs, airline carriers are looking for new ways to increase revenues and thereby counteract declining profits. Airline A has proposed increasing the number of passengers that can fit on its airplanes by creating several standing room only "seats" in which passengers would be propped against a padded backboard and held in place with a harness. This proposal, since it relates to passenger safety, cannot be implemented without prior approval by the Federal Aviation Administration.

The above statements, if true, indicate that Airline A has made which of the following conclusions?
The addition of standing room only "seats" will generate more revenue than the cost of ensuring that these seats meet safety standards.
The Federal Aviation Administration will approve Airline A's specific proposal.
The revenue generated by the addition of standing room only "seats" is greater than the current cost of jet fuel.
There are no safer ways in which Airline A can increase revenues.
Passenger safety is less important than increasing revenue.

When I first saw this question I agreed with the answer given (a), but when thinking about it a bit more I can think (c) is just as good if not better. If the jet fuel costs are even the same, adding the new service will not "counteract declining profits". The thinking of the airline must be profit oriented and not just revenue oriented. Thoughts?

[jnelson0612]

Due to high jet fuel costs, airline carriers are looking for new ways to increase revenues and thereby counteract declining profits. Airline A has proposed increasing the number of passengers that can fit on its airplanes by creating several standing room only "seats" in which passengers would be propped against a padded backboard and held in place with a harness. This proposal, since it relates to passenger safety, cannot be implemented without prior approval by the Federal Aviation Administration.

The above statements, if true, indicate that Airline A has made which of the following conclusions?
The addition of standing room only "seats" will generate more revenue than the cost of ensuring that these seats meet safety standards.
The Federal Aviation Administration will approve Airline A's specific proposal.
The revenue generated by the addition of standing room only "seats" is greater than the current cost of jet fuel.
There are no safer ways in which Airline A can increase revenues.
Passenger safety is less important than increasing revenue.

When I first saw this question I agreed with the answer given (a), but when thinking about it a bit more I can think (c) is just as good if not better. If the jet fuel costs are even the same, adding the new service will not "counteract declining profits". The thinking of the airline must be profit oriented and not just revenue oriented. Thoughts?

I think that C goes a bit too far. With A, the airline must assume that the potential revenue from selling these seats is higher than the cost of ensuring that they are safe; in other words, they have calculated that they will make money by adding the seats. Since this is about profit that seems good.

C goes too far. The argument says that they are going to create "several" standing room only "seats". That could mean just a few rows in a plane with many more rows of standard seats. Does this mean that the management has concluded that these possibly few rows will pay for the fuel for the entire plane? Not necessarily, but instead just that they will add profit to the flight.

Hope this helps!

[cumulonimbus]

The only reason that I didn't choose A was because of words - 'more than'. The question says -'counteract declining profits', and I took very literally, and assumed it should have been 'equal'.
and hence would counteract by having equal and opposite effect.

I chose B.
Any thoughts?

[tim]

First, "counteract" does not imply exact parity, only that the negative effect has been mitigated in some way. Second, regardless of how you use "counteract", the airline cannot swing back into profitability OR achieve the perfect parity you describe unless the new seats will bring in more revenue than the cost of compliance. Otherwise, profits will continue to decline for sure.

[msaurabh9483]

Hi Instructors,

I need some clarifications wrt to choice A which says

The addition of standing room only "seats" will generate more revenue than the cost of ensuring that these seats meet safety standards.

As per explanation in the MGMAT tests

Airline A must have concluded that the cost of implementation of its proposal is less than the revenue that the new seats will generate.

This explanation is pretty clear but is it what choice A is referring to ?
Doesn't choice A add extra "the cost of ensuring that these seats meet safety standards"

Not sure if I am assuming too much , but it is possible that these standing seats as it is in fact meet the safety standards and will get an approval from Federal Aviation Administration and so how has airline assumed that these seats will cost more to meet safety standards.

[jlucero]

Hi Instructors,

I need some clarifications wrt to choice A which says

The addition of standing room only "seats" will generate more revenue than the cost of ensuring that these seats meet safety standards.

As per explanation in the MGMAT tests

Airline A must have concluded that the cost of implementation of its proposal is less than the revenue that the new seats will generate.

This explanation is pretty clear but is it what choice A is referring to ?
Doesn't choice A add extra "the cost of ensuring that these seats meet safety standards"

Not sure if I am assuming too much , but it is possible that these standing seats as it is in fact meet the safety standards and will get an approval from Federal Aviation Administration and so how has airline assumed that these seats will cost more to meet safety standards.

It isn't directly stated here, but the entire purpose of this argument is to counteract declining profits. With that in mind, Airline A decides to do X. It's a very small and logical jump to make to say that whatever X is, should be something that would counteract declining profits. Therefore, it wouldn't make sense that this new proposal, which takes time and energy to get approved by the FAA, should be able to generate revenue, aka- make more than it costs. That's what A states and that's why it's the correct answer.