Logical reasoning PrepTest 103 · Section 1 · Question 23

Question prompt

Construction contractors working on Remaining source text redacted.
Why the credited answer is right

Credited answer: D

The notes below walk through why it fits the stem and how to eliminate the rest.

Argument or Facts

Facts

Valid or Flawed

NA

Question Type

Paradox Questions

Stimulus Summary

Cost Plus 1 - Profit is a fixed percentage of the contractor’s costs, so higher costs lead to higher profits Cost Plus 2 - Fixed amount of profit above costs Expectation - Cost Plus 1 would lead to more cost overruns over initial estimate Reality - Cost Plus 2 more frequently leads to cost overruns

Answer Anticipation

It’d be easy to get very confused trying to anticipate various answers during our analysis step, but we should always stick to our roots - the basic approach to these question types. Here, we have a Paradox question, so we should start by clearly defining the paradox. Luckily, the stimulus already did that for us (“one might expect,” “Paradoxically”). Under one type of contract, there’s a motive to increase costs, so you’d expect costs to be higher under that contract. However, it’s another type of contract where profits aren’t based on costs that sees more overruns. This is where we hit into one of the most basic patterns on Paradox questions - an unexpected difference. Here, the two types of contracts are compared, and we end up with an unexpected difference between them. Instead of trying to figure out exactly what we’re looking for, then, let’s fall back on the common answer to this pattern - a relevant difference between the two types of contracts that can explain higher cost overruns in the type that doesn’t provide a profit motive for doing so.

Answer choices

  1. A
    Clients are much less Remaining source text redacted.
    Why choice A is not credited
    The project being scuttled is out of scope of the stimulus, where such a possibility isn’t mentioned or envisioned.
  2. B
    On long–term contracts, cost Remaining source text redacted.
    Why choice B is not credited
    This answer is trying to confuse you with math and economics - don’t fall for it. It’s bringing in too many things that the stimulus doesn’t talk about, so we can cut it as out of scope. (Long-term contracts? Inflation and government figures?)
  3. C
    On any sizable construction Remaining source text redacted.
    Why choice C is not credited
    This would apply to both types of Cost Plus contracts, so it doesn’t explain why one type leads to more cost overruns than the other.
  4. D
    Clients billed under a Remaining source text redacted.
    Why choice D matches the stem
    This answer provides a relevant difference between the two types of Cost Plus contracts. If clients review expenditures only when profit varies with cost, then they’d review them only with Cost Plus 1 contracts, not Cost Plus 2. With the enhanced scrutiny from the client review, the contractor would likely be more careful with their expenditures and hitting estimates, explaining why there are more overruns in an unreviewed Cost Plus 2 contract.
  5. E
    The practice of submitting Remaining source text redacted.
    Why choice E is not credited
    If the fixed-profit contracts (Cost Plus 2) have inflated costs from the start, then you’d expect that they’d be unlikely to go over those costs since they’re already higher than the contractor expects! If there are still cost overruns, that introduces a whole new paradox! This answer brings up a relevant difference, but one that makes the paradox worse, not better.

What this tests

Question analytics

Based on historical answer selection rates for this question.

Answer choice distribution

  1. A 11%
  2. B 6%
  3. C 8%
  4. D Credited 44%
  5. E 31%

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