Fines levied against those responsible for certain environmentally damaging accidents are now so high that it costs a...
ShannonOh22August 4, 2019
Question on Answer choice D
I was between A and D on this question, and ultimately chose D for these reasons:
If a business "treats fines that are levied against them as an ordinary business expense", this means the fines would be factored into their yearly budget, and would not affect their profits at all. In the conclusion, it states "since businesses value their profits", they should pay to install the preventative safeguards - if the fines don't affect their profits, therefore, they wouldn't be concerned with risk OR with fines.
Answer choice A says businesses "generally greatly underestimate risk", but this does not provide any insight as to whether or not they ultimately spend the money on the safeguards. Although it can be construed that their undervaluation of risk results in a lack of motivation in installing adequate safeguards, this doesn't say mention anything about their profits - which, according to the conclusion, is their main deciding factor in any financial decision.
Can you please help clarify why A is in fact the correct answer? I read through the explanations already provided, but I'm still thinking D makes more sense - thanks so much in advance for your patience! :)
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P: Fines levied for certain accidents are so high that it costs the company more to pay the fine than to adopt preventative measures. P: Businesses value their profits. - - - - - - - - - - - - - - - - - - - - - - - C: Those that might have such accidents will now install adequate environmental safeguards.
The argument presumes that since the expense of paying a fine is higher than the expense of preventative measures, the companies who are at risk to have such accidents are more likely to install the safeguards.
The question requires us to select an answer choice that most seriously WEAKENS the argument:
(A) says "Business generally greatly underestimate the risk of future accidents."
This fact weakens the argument because if the businesses systematically underestimate the risk of accidents, they are unlikely to install safeguards because in their mind, the probability of an accident and hence, a steep fine, is extremely low. Since the companies fail to perceive risk accurately, the fact that fines are extremely high is insufficient to incentivize them to install safeguards as the author concludes. Notice that the conclusion only talks about companies "that might have such accidents," as the author considers the risk of a high fine to be a motivating factor that coincidentally affects the profits.
(D) says "Businesses treat fines that are levied against them as an ordinary business expense."
What (D) is trying to hint at is that if a fine is treated as an ordinary business expense, it is deductible for tax purposes and even though the fine would still affect the profits (profits = revenues - expenses), the impact is not as bad because of the tax break. Of course, LSAT does not expect you to know corporate taxation rules and bring this outside knowledge in for this question. The fact that this answer choice concerns accounting for fines and penalties instead of the relationship between risk/profit and the likelihood of installing safeguards is sufficient to rule it out.
As a side note, if an item is treated as an ordinary business expense it does not mean it would be factored into the yearly budget, and ordinary expenses would always affect profits, but again, this is outside the scope of the question and it is important not to use your preexisting knowledge on the LSAT.
Hope this helps. Let me know if you have any further questions.
tomgbeanDecember 25, 2019
I did not choose A because to justify A one would have to assume that the new fines would not encourage companies to implement new methods of detecting risks that may overcome that short sightedness in underestimating the risk of future accidents. Also, D does not require as much in-depth or outside knowledge as you imply. Treating fines as ordinary expenses could simply mean that profit is not primary motivating factor for incentivizing businesses to implement the environmental safeguard. Perhaps the business is so big that even if the fines are higher than the cost of implementing environmental safeguards, that the fines has no impact on profit. Consider Amazon or Apple whose worth are in the billions. A fine of, let's say, $100, 000 or even a million may not make much of a difference. Both A and B require outside knowledge/assumption.
shunheJanuary 6, 2020
Hi @tomgbean,
(A) isn't about encouraging companies to implement new methods of detecting risks. (A) is telling us that because the companies are underestimating the risk of future accidents, they're going to think that it's still worth it to pay the fine because they think that they will almost never have to pay the fine. If the businesses don't think the accidents will happen at all, then it's still profitable to not put in the measures. Say the fine is $1 million, the cost of putting in the safeguards is $500k, and the business thinks the chance of an accident is 1% (when really, it might be 50%). Then from the business's point of view, the expected cost of putting in the safeguards is $500k, and the expected cost of not putting them in is $1M*.01 = $10k.
We know that businesses aren't big enough to absorb the costs of the fines because of the first sentence, which tells us explicitly that the fines are high and in any case that they impact profit more than the safeguards would. Hope this helps!
