Although Ackerburg’s Subway System is Currently Operating at a Deficit, the Transit Authority will Lower Subway Fares Next Year.

Question: Although Ackerburg’s subway system is currently operating at a deficit, the transit authority will lower subway fares next year. The authority projects that the lower fares will result in a ten percent increase in the number of subway riders. Since the additional income from the larger ridership will more than offset the decrease due to lower fares, the transit authority actually expects the fare reduction to reduce or eliminate the subway system’s operating deficit for next year.

Which of the following, if true, provides the most support for the transit authority’s expectation of reducing the subway system’s operating deficit?

1. Throughout the years that the subway system has operated, fares have never before been reduced.
2. The planned fare reduction will not apply to students, who can already ride the subway for a reduced fare.
3. Next year, the transit authority will have to undertake several large-scale track maintenance projects.
4. The subway system can accommodate a ten percent increase in ridership without increasing the number of trains it runs each day.
5. The current subway fares in Ackerburg are higher than subway fares in other cities in the region.

Answer: D

Explanation:

A GMAT Critical Reasoning section comprises some facts and statements. GMAT critical reasoning tests the reasoning, logical and analytical thinking abilities of the candidate. The candidate has to deduce the correct option by finding the logically correct argument or by eliminating the irrelevant arguments.

The statement states -Although Ackerburg’s subway system is currently operating at a deficit, the transit authority will lower subway fares next year. The authority projects that the lower fares will result in a ten percent increase in the number of subway riders. Since the additional income from the larger ridership will more than offset the decrease due to lower fares, the transit authority actually expects the fare reduction to reduce or eliminate the subway system’s operating deficit for next year.

Which of the following, if true, provides the most support for the transit authority’s expectation of reducing the subway system’s operating deficit?

1. The fact that fares have never been reduced provides no evidence about what would happen if they were reduced.
2. This suggests that the planned fare reduction would not affect revenue from student riders, but it does not suggest how it would affect revenue from all other riders.
3. These maintenance projects will probably increase the operating deficit, making it less likely that the fare reduction will reduce or eliminate that deficit.
4. Correct. This indicates that the plan will not involve extra operating expenses for running trains and thus increases the likelihood that the plan will reduce the operating deficit.
5. Ackerburg may differ from other cities in the region in ways that make the higher fares optimal for Ackerburg's subway system.

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