The correct answer is Use a combination of On-Demand Instances and Spot Instances to balance flexibility and cost savings. On-Demand Instances offer full flexibility without long-term commitment and are suitable for workloads that require high availability or are unpredictable in usage. Spot Instances can offer up to 90% cost savings compared to On-Demand pricing and are ideal for stateless, fault-tolerant applications such as those managed by Auto Scaling groups. Using a mix allows the application to remain resilient and cost-efficient.

The option Use Dedicated Instances only to isolate workloads and manage capacity is incorrect. Dedicated Instances are generally used to meet licensing or compliance requirements and come at a higher cost. They are not designed for cost optimization unless workload isolation is required.

The choice Launch only On-Demand Instances to maintain full flexibility without any risk is valid for flexibility but is not cost-effective. It misses out on the potential savings offered by Spot Instances for the portion of the workload that can tolerate interruptions.

The option Use a combination of On-Demand Instances and Reserved Instances for predictable pricing is incorrect in this case because Reserved Instances require a long-term commitment (1 or 3 years), which the company explicitly wants to avoid.

This question tests your understanding of EC2 purchasing options and how to optimize costs while staying flexible. A useful tip is to match Spot Instances with Auto Scaling groups for burstable, interruptible workloads, and keep On-Demand Instances for the core stable portion. Avoid committing to Reserved pricing when flexibility is a key constraint.

The challenge lies in identifying the trade-offs between flexibility and cost-efficiency, and eliminating options that conflict with the no long-term commitment requirement.

Full AWS Practitioner Certification Question