It is easy for the government to control state-owned companies through nods and winks. So, what really needs to be done as a first step is to be done as a first step is to put petrol pricing on a transparent formula—if the price of crude is x and the exchange rate y, then every month or fortnight, the government announces a maximum price of petrol, which anybody can work out from the x and y. The rule has to be worked out to make sure that the oil-marketing companies can, in general, cover their costs. This will mean that it one company can innovate and cut costs, it will make greater profits. Hence, firms will be more prone to innovate and be efficient under this system. Once the rule is announced, there should be no interference by the government. If this is done for a while, private companies will re-enter this market. And once a sufficient number of them are in the fray, we can remove the rule-based pricing and leave it truly to the market (subject to, of course, the usual regulations of anti-trust and other competition laws).
Consider the following statements:
According to the passage, an oil company can make greater profits, if a transparent, formula for petrol pricing is announced every fortnight or month by:
Which of the statements given above is/are correct?
According to the passage, the implementation of a transparent, formula-based petrol pricing system enables oil companies to achieve greater profits through specific operational efficiencies. The text explicitly states, "This will mean that if one company can innovate and cut costs, it will make greater profits." Therefore, undertaking innovation (Statement 2) and cutting costs (Statement 3) are identified as direct methods for an oil company to enhance its profitability under this proposed system. Both statements align with the passage's explanation of how firms become more prone to innovate and be efficient.
Statement 1 (promoting its sales) is not mentioned in the passage as a factor contributing to greater profits under the transparent pricing formula. The passage focuses on internal efficiencies like innovation and cost reduction, not sales volume or promotional activities, as drivers of increased profit margins in this context.
Statement 4 (selling its equity shares at higher prices) is irrelevant to the operational profits derived from the transparent, formula-based petrol pricing mechanism described. The passage discusses how companies can earn greater profits from their core business operations (selling petrol) by being innovative and efficient, not through financial market activities such as equity share sales.