#24 - Tony: A new kind of videocassette has just been

[akanshalsat]

This entire stimulus kind of confused me... I'm not really sure what Anna is saying and the answer choices confused me as well!

I chose C bc I thought it was saying that its still cheaper (even with royalties) to go with the new videocassette than the old one

[Francis O'Rourke]

Hi Akanshalsat,

It seems like you understand the main ideas here. Tony told us that the newer videocassettes are economical for a rental store to stock. His reasoning is that even though the new kind don't last as long, they are much cheaper than the old kind.

Anna points out that the bulk of the cost of stocking videos, over half of the total cost, goes towards royalties. Anna seems to be arguing that there is not going to be a large decrease in price, since 95% of the cost in stocking videos would not change because of the new technology.

We want to weaken her argument by saying that it would make a significant difference in cost for a store to stock up on the new kind of cassettes.

Answer choice (C) tells us that along with the reduction in cost of the cassettes themselves, buying the new kind would lower the royalties paid to the studio. Since Anna just told us that this accounted for over half of the cost of stocking a videocassette, then it seems like stocking the new kind of cassettes would result in a significant cost reduction.

Let us know if you have any other questions!

[akanshalsat]

Thanks for this explanation

[grunerlokka]

I am trying to understand why answer choice B is wrong here. It seems to me if the new kind of video casettes are bought to replace old ones, then there will be zero royalty fees since its just replacing the physical format and royalties have already been paid for the first time when the old ones were bought. This means that this answer B is stronger than C, which is about saving via halving royalty fees only. What am I missing?

[Frank Peter]

Hi Gruner,

I think you may be bringing in a little too much outside knowledge in thinking about this question. It is possible that they wouldn't have to pay another royalty fee, but we can't really say for sure. Unless the stimulus specifically said something along these lines, we can't make this assumption.

[ashpine17]

Is Anna saying these new videocassettes won't be as economical as tony thinks or not economical at all?

[evelineliu]

Hi Ash,

Anna takes exception to Toy's advice for the video stores (video stores would be more economical if they bought and stocked movies recorded on new videocassette). She says that the cost of videocassette is only a small fraction of the overall cost of buying a videotaped movie, and the bulk of the expense is the royalty fee. Each time a tape wears out (and these new ones wear out faster than the old ones), a video store incurs another royalty fee. She thinks they are less economical than Tony believes.

Hope that helps,
Eveline