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A new technique for extracting residues of oil from existing

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A new technique for extracting residues of oil from existing [#permalink] New post 11 May 2009, 11:52
00:00
A
B
C
D
E

Difficulty:

(N/A)

Question Stats:

67% (02:34) correct 33% (01:49) wrong based on 12 sessions
A new technique for extracting residues of oil from existing oil wells by using lignins, a by-product of papermaking, is profitable provided that oil prices are over 20 dollars a barrel. Since oil prices are rising, investors looking for companies with prospects for rapid growth in profits would be wise to invest in paper manufacturers, whose currently almost worthless by-product will soon be a profit-boosting commodity.
Which of the following, if true, most seriously weakens the argument above?
(A) A small quantity of lignins are currently sold by paper manufacturers to chemical companies, but most of the lignins produced are burnt as waste.
(B) The 20-dollar-a-barrel oil price as a threshold of profitability for using lignins allows for the increased cost of refining crude oil that has been extracted using lignins.
(C) Only one-half to two-thirds of the total oil in a well can be extracted using conventional techniques of pumping and flooding with water.
(D) Petroleum-based substances that can be used as a substitute for lignins in extracting oil are costly and are made from oil, and these substances therefore increase in price as oil increases in price.
(E) The quantity of lignins produced annually in the manufacture of paper is several times larger than the amount that is likely to be useful in the oil industry.
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Re: CR: Lignins [#permalink] New post 11 May 2009, 12:22
A new technique for extracting residues of oil from existing oil wells by using lignins, a by-product of papermaking, is profitable provided that oil prices are over 20 dollars a barrel. Since oil prices are rising, investors looking for companies with prospects for rapid growth in profits would be wise to invest in paper manufacturers, whose currently almost worthless by-product will soon be a profit-boosting commodity.
Which of the following, if true, most seriously weakens the argument above?
(A) A small quantity of lignins are currently sold by paper manufacturers to chemical companies, but most of the lignins produced are burnt as waste.
Irrelevant

(B) The 20-dollar-a-barrel oil price as a threshold of profitability for using lignins allows for the increased cost of refining crude oil that has been extracted using lignins.

Weakens the argument as it says the use of lignins increase the refining cost
(C) Only one-half to two-thirds of the total oil in a well can be extracted using conventional techniques of pumping and flooding with water.

This can strengthen the argument if we assume lignins can extract the remaining fraction of the total oil or can be considered as irrelevant.
(D) Petroleum-based substances that can be used as a substitute for lignins in extracting oil are costly and are made from oil, and these substances therefore increase in price as oil increases in price.

Strengthens the argument.
(E) The quantity of lignins produced annually in the manufacture of paper is several times larger than the amount that is likely to be useful in the oil industry.
This weakens the argument as investing on a paper manufactoring company(which may or may not be profitable as manufacturing paper as the priority) for a by-product which is used in the oil industry(a small amount of the quantity).Instead,buying froma paper industry would be better.
Hence Answer E.
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Re: CR: Lignins [#permalink] New post 11 May 2009, 12:33
Thanks for the correction!
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Re: CR: Lignins [#permalink] New post 12 May 2009, 17:10
E

paper manufactuers wont make a bigger profit on lignins because the market for lignins will not grow, so investors shouldnt invest.
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Re: CR: Lignins [#permalink] New post 14 May 2009, 09:28
The reason why I don't think it's E is because noone is buying the lignins right now.

So if they start buying lignings in the future, regardless if paper companies have quantity of 100 lbs, or 1,000,000 lbs available, you can still be profitable by selling the goods.

However, if we were to start getting into supply of lignins by companies vs market demand and how that will impact price, then E would make sense.

But I'd think that's thinking above and beyond the passage.

I go for B, not I'd admit I'm not overly confident.

bigtreezl wrote:
E
paper manufactuers wont make a bigger profit on lignins because the market for lignins will not grow, so investors shouldnt invest.
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Re: CR: Lignins [#permalink] New post 14 May 2009, 10:19
Between B and E, I choose B
increase in refining cost coz of lignin will serve as a deterrent of not using lignin.
B Hence weakens the argument.

E, though there are large quantities available but it will still provide some profits to the paper mills

IMO B
Whats the OA????
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Re: CR: Lignins [#permalink] New post 14 May 2009, 10:36
A nice argument ... The answer is E and here's the reason:

The conclusion states that "whose currently almost worthless by-product will soon be a profit-boosting commodity"

All the options presented are either irrelevant or strengthen this conclusion except option E which clearly states that the quantity of lignin produced is way more than what's required for extracting oil, thereby reducing it's profit-boosting ability.
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Re: CR: Lignins [#permalink] New post 14 May 2009, 20:09
bigfernhead wrote:
The reason why I don't think it's E is because noone is buying the lignins right now.

So if they start buying lignings in the future, regardless if paper companies have quantity of 100 lbs, or 1,000,000 lbs available, you can still be profitable by selling the goods.

However, if we were to start getting into supply of lignins by companies vs market demand and how that will impact price, then E would make sense.

But I'd think that's thinking above and beyond the passage.

I go for B, not I'd admit I'm not overly confident.

bigtreezl wrote:
E
paper manufactuers wont make a bigger profit on lignins because the market for lignins will not grow, so investors shouldnt invest.


Cant be B. B strengthens the argument by saying that there will still be a profit even with the increased cost of extracting oil using lignins
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Re: CR: Lignins [#permalink] New post 17 May 2009, 11:01
Yes, OA is E indeed.

So this is supply-demand problem..... :|
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Re: CR: Lignins [#permalink] New post 29 Oct 2009, 01:41
I picked E too
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Re: CR: Lignins [#permalink] New post 29 Oct 2009, 08:09
Pleonasm's explanation sums it all up.. the answer should be E and not B..
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Re: CR: Lignins [#permalink] New post 29 Oct 2009, 08:41
I got E
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Re: CR: Lignins [#permalink] New post 30 Apr 2011, 01:38
E in 2:20 secs . i want the timing to be faster ... 50% faster at least than that. what shall i do to reduce the time taken in CR questions ??
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Re: CR: Lignins [#permalink] New post 30 Apr 2011, 01:41
btw i faced a similar question in knewton diagnostic, with the same oversupply/demand scenario . how to deal with weird new terms like lignin and oil residue etc is another aspect which consumes time
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Re: CR: Lignins [#permalink] New post 01 May 2011, 12:14
E
Re: CR: Lignins   [#permalink] 01 May 2011, 12:14
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