q 39 CAT 1- Most cable television companies

[gmatwork]

Most cable television companies currently require customers to subscribe to packages of channels, but consumer groups have recently proposed legislation that would force the companies to offer a la carte pricing as well. Subscribers would pay less, argue the consumer groups, because they could purchase only the desired channels. However, the cable industry argues that under the current package pricing, popular channels subsidize less-popular ones, providing more options for viewers. For this reason, the industry claims that it is always cheaper for the consumer to purchase many bundled channels than to buy them individually.

Which of the following would be most important for the government to determine before deciding whether to require cable television companies to offer a la carte pricing in order to reduce consumer costs?

a) Whether the total number of channels offered to consumers would decrease, along with programming diversity, as a result of the a la carte pricing structure

b) Whether advertising revenue for the cable television companies would decrease as a result of the a la carte pricing structure

c) Whether a large number of consumers would, in fact, significantly reduce the number of channels purchased if given the option of purchasing them individually

d) Whether the number of cable television consumers has been declining as a result of new avenues of content delivery, such as the Internet

e) Whether a la carte subscribers would be required to have new television set-top boxes

Please explain why is E wrong? Although E also talks about increase in costs to consumers....how to avoid such a trap?

[tim]

E is not bad, and neither are a lot of the choices. the best choice though is the one that goes directly to the objections raised by the cable companies, which is what C does..

[rupali.kunmun]

The issue in this argument is whether la carte or a package helps in reducing the consumer costs.

As per the premise:

under the current package pricing, popular channels subsidize
less-popular ones, providing "more options for viewers"

Incase the consumers purchase fewer channels in la carte then the costs will go down and it becomes a better option.But if the consumer purchase the same number of channels as are available in a package then the package is a better option as popular channels subsidize less-popular ones, providing "more options for viewers.

a) total number of channels offered to consumers would decrease, along with programming diversity---we are concern with total number of channels purchased by customers in la carte.Program diversity has nothing to do with the argument.

b)Advertising revenue is not relevant to the issue of consumer costs.

c)This is the correct answer.Consumers purchase less channels in la carte then consumer costs will go down.

d) number of consumers declining--nothing to do with the channel s purchased by consumers

e) new televison set up boxes--irrelevant.

[jnelson0612]

Thanks everyone!