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Technological improvements and reduced equipment costs have

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Director
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Technological improvements and reduced equipment costs have [#permalink] New post 05 Feb 2013, 05:23
00:00
A
B
C
D
E

Difficulty:

  25% (low)

Question Stats:

76% (02:13) correct 23% (01:11) wrong based on 42 sessions
Technological improvements and reduced equipment costs 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 (that is, the price per barrel to which oil would have to rise in order for new solar power plants to be more
economical than new oil-fired power plants) is unchanged at thirty-five dollars.
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 viability?
(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 oil-fired power plants.
(D) Most electricity is generated by coal-fired or nuclear, rather than oil-fired, power plants.
(E) When the price of oil increases, reserves of oil not previously worth exploiting become economically
viable.
[Reveal] Spoiler: OA

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Re: Technological improvements and reduced equipment costs have [#permalink] New post 05 Feb 2013, 10:11
fozzzy wrote:
Technological improvements and reduced equipment costs 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 (that is, the price per barrel to which oil would have to rise in order for new solar power plants to be more
economical than new oil-fired power plants) is unchanged at thirty-five dollars.
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 viability?
(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 oil-fired power plants.
(D) Most electricity is generated by coal-fired or nuclear, rather than oil-fired, power plants.
(E) When the price of oil increases, reserves of oil not previously worth exploiting become economically
viable.


Have to choose between A & C. But, not sure how to prove which one is better or wrong is tough.
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Re: Technological improvements and reduced equipment costs have [#permalink] New post 06 Feb 2013, 02:06
greatps24 wrote:

Have to choose between A & C. But, not sure how to prove which one is better or wrong is tough.


This is a pretty tough resolve the paradox question from what usually appears.
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Re: Technological improvements and reduced equipment costs have [#permalink] New post 06 Feb 2013, 03:22
Technological improvements and reduced equipment costs 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 (that is, the price per barrel to which oil would have to rise in order for new solar power plants to be more
economical than new oil-fired power plants) is unchanged at thirty-five dollars.
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 viability?

Economic viability = EV = threshold/difference between cost effectiveness of new solar power plants and new oil-fired power plants
tech improvements have made solar power plants more efficient. still, EV is unchanged at $35.

(A) The cost of oil has fallen dramatically. the argument compares EV only between new solar power plants and new oil-fired power plants and not old oil-fired power plants. but dramatic cost reduction in oil will lead to cost efficiency of old oil based power plants as well.
(B) The reduction in the cost of solar-power equipment has occurred despite increased raw material costs for that equipment. does not explains why EV has not changed. In fact, supports the fact that it should have changed.
(C) Technological changes have increased the efficiency of oil-fired power plants. correct - tech improvements increased the efficiency of both new solar power plants and new oil-fired power plants. Good enough reason for EV to be unchanged
(D) Most electricity is generated by coal-fired or nuclear, rather than oil-fired, power plants. irrelevant
(E) When the price of oil increases, reserves of oil not previously worth exploiting become economically viable does not explains why EV has not changed
.
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Re: Technological improvements and reduced equipment costs have [#permalink] New post 08 Feb 2013, 04:17
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fozzzy wrote:
greatps24 wrote:

Have to choose between A & C. But, not sure how to prove which one is better or wrong is tough.


This is a pretty tough resolve the paradox question from what usually appears.


Let's use numbers to understand what's happening in the passage:

In the last decade,

Suppose, it used to cost $2 to produce one unit of energy from Solar power plants
We are given that price per barrel has to be minimum $35 for solar energy to be economically viable. What does economically viable means? It means that the cost of production of energy from solar power plant is not greater than the cost from oil run power plants.

So, at threshold level, cost per unit of energy from solar power plant = cost per unit of energy from oil power plant

Now, we are given that this threshold level is at oil price of $35 per barrel.

So, a barrel of oil should produce 17.5 units of energy (so that the cost is $2 per unit).

Now, coming to today,
Solar power sources have become very efficient. Therefore, let's suppose the cost of solar energy today is $1 per unit.

However, we are given that the threshold price level of barrel of oil is same i.e. $35.

This means that the same barrel oil must produce 35 units of energy for the costs of both solar energy and oil energy to remain same.

This means that the efficiency of oil power plants must have increased in same proportion as that of solar power plants.

Therefore, Option C is correct.

For completion sake, let's also look at option A. It says that the cost of oil has fallen - First of all, we are not concerned about cost of oil; we are concerned about price of oil to the power plants. Even if we say that the cost here refers to the price paid by the power plants, it is still irrelevant because when we are talking of a threshold price level of oil, we are referring to a hypothetical level below which solar energy would not be viable. We are not talking about actual price level; just as we are not talking about whether solar energy is economically viable in reality or not. We are just talking of conditions that are needed to make it economically viable.

I think this is pretty tough.

Hope I made some sense.

Let me know if some further clarification is required.

Thanks,
Chiranjeev
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Re: Technological improvements and reduced equipment costs have   [#permalink] 08 Feb 2013, 04:17
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