Clearbell Telephone provides slow-dialing (SD) service to customers for a low fee, and fast-dialing (FD) service to other customers who pay a somewhat higher fee. FD technology, however, is so efficient that it costs Clearbell substantially less per average call to provide than does SD. Nonetheless, accountants have calculated that Clearbell’s profits would drop if it provided FD to all its customers at the current low-fee rate.

Assume that installation costs for FD are insignificant if the customer already has SD service. Which of the following, if true about Clearbell, best explains the results of the accountants’ calculation?



The extra revenue collected from customers who pay the high fee is higher than the extra cost of providing SD to customers who pay the low fee.

The low fee was increased by 6 percent last year, whereas the higher fee was not increased last year.

Although 96 percent of customers regard FD service as reliable and more convenient than SD, fewer than 10 percent of them choose to pay the higher fee for FD service.

The company’s competitors generally provide business customers with FD service at low-fee rates.

Profits rose slightly each month for the first three months after FD was first offered to customers, then fell slightly each month for the succeeding three months.

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GMATAdvanced-CR