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# Threshold of economic viability

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Director
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Threshold of economic viability [#permalink]  24 Jan 2004, 21:53
Took powerprep test 2 for the first time, and I missed this one:

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 economically viable
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SVP
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My choice would be A.

B is tempting. Even if the plants which use oil have become efficient the cost of energy they produce might be higher if the oil prices are higher. B does not talk about the price.
Well I meant C here

Last edited by anandnk on 25 Jan 2004, 07:11, edited 1 time in total.
Senior Manager
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sounds like C.

efficiency of solar plant increses so is the efficiency of oil plan which results in the constant difference in the cost.
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Manager
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Go with C
Intern
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The other answers are out of scope

SVP
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I believe C is the answer here. The argument is talking about new oil fired plants.
Director
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SVP
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hi stoolfi,

Did you choose A. ? If not please let me know your reasoning for chosing the answer.
Anand.
Director
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Yeah. I agree that C is correct, but under "exam conditions" I choked a bit.
SVP
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tell me you chose A. This important because if you miss the word "new oil fired plants" you are doomed. They key word is new here. Otherwise C can be refuted very easily.
Director
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I did choose A.
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Re: Threshold of economic viability [#permalink]  01 Mar 2013, 05:28
STATEMENT:
(1) Solar power has become more efficient
(2) Threshold = price per barrel of oil to which price has to rise for solar power to be more economical than oil-fired plants
(3) BUT threshold remain the same...

WHY IS (A) WRONG?
Firstly, threshold refers to a theoretical price of oil and not the actual price of oil.
Secondly, price of oil is more of just a measurement that shows how more economical is the solar power plant compared to oil-fired plants

F(efficiency of solar power plant, efficiency of oil-fired plant) = price of oil per barrel

Two things that are actually variables of this formula are :
(1) efficiency of solar power plant and
(2) efficiency of oil-fired plant.

Rise in Price = is theoretical price of oil to show economic viability

Only, C discusses the other variable in the formula which is efficiency of oil-fired plants.
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Re: Threshold of economic viability   [#permalink] 01 Mar 2013, 05:28
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