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Technological improvements and redced equipment cost have

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Intern
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Technological improvements and redced equipment cost have [#permalink] New post 12 Sep 2004, 19:14
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Technological improvements and redced equipment cost have made converting solar energy directly into electricity far more cost efficient in the last decade. However, the threshold of economic viability for solar power (the price per barrel to which oil would have to rise in order for new solar power plants to be mroe economical than new oil fired plants) is unchanged at $45.

Which of the following, if true, does most to help explain why the increased cost efficiency of solar power has not decreased its threshold of economic activity?

a) the cost of oil has fallen dramatically
b) the reduction in the cost of solar power equipment has occurred despite increased raw material costs for that equipment
c) technological changes have increased the efficiency of oul fired power plants
d) most electricity is generated by coal fired rather than oil fired power plants
e) when the price of oil increases, teserves of oil not previously worth exploring become economically viable



I found this very confusing. I ended up guessing the first time I looked at it, then, puzzled by the OA and especially by their explanation, ended up tearing the argument apart, and 15 minutes into it, I agreed to their answer. I wonder if anyone else has a more straightforward way of seeing through this or am I really dense in this case :shock: .

1, If I was to POE, I guess that A and E can be eliminated as they both say essentially the same thing. B is not relevant, and neither is D so that would leave C as the only option.

2, Logically: the threshold equation is, 1 KWATT (or whatever) of electricity can be produced from X (per unit cost of solar process) or Y (cost of oil process), where Y is a function of both the price of oil (Y1) and the price of the process itself (Y2).

So we have: X = Y1 + Y2. The trick is that solar energy per se does not cost anything (only the process to convert it into electricity does), whereas oil costs money; so we only have one X, but two components of Y.

Then the question becomes, since X is down, how come Y1 is not down; Y1 is the threshold of oil. Well, if Y2 went down, then Y1 can stay constant, and the equality is satisfied.

This is the only way I can explain this, and I am not at all confident I could have seen through it in less than 2 minutes. Any one has a different idea about how to tackle this?
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 [#permalink] New post 12 Sep 2004, 19:42
Between A and C, I will chose C.
A oil prices might have gone down, but we don't know how it effect its usage for power generation.
C with everycost remaining constant, and tech advancements are made, then it will lead to increased index.
S
  [#permalink] 12 Sep 2004, 19:42
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