cool_jonny009 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.
Hi experts
avigutman IanStewartSeveral experts and members have used "ratio," breakdowns or other math concepts to approach this question, but I cannot relate to them. Later I found a way to explain why (C) is correct. Could you help confirm my line of thinking? It would be great if you could some of your thoughts when you have time.
Initially I could see why (A), (B), (D) and (E) are incorrect, but I could not understand how (C) explains the situation--it was unclear to me how (C) explains why the threshold can stay unchanged at $35, despite the increasing efficiency in solar power.
Reading "
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," I initially thought that the threshold is mainly decided by the costs of solar power generation, and by nothing more. I thought so mainly because this question reminded me of shale oil and crude oil--it is said that shale oil does not get extracted unless the oil price surpasses the costs of extracting shale oil.
Let's check:
(C) Technological changes have increased the efficiency of oil-fired power plants.
Initially, I thought that the threshold of "economic viability for solar power" would reduce only if the costs of solar power generation reduce. For example, one barrel priced at $30 can be used to produce 1,000 units of power, and the costs of producing 1,000 units solar power total $35. We can infer that solar power would be economical only when the oil prices rises to $35 per barrel. (I think we can ignore other costs, such as labor costs or maintenance costs, since including them would make the discussion too complex, at least to me.)
If the costs of producing solar power drop to $32, the threshold should fall to $32, all other things being equal.
But, later I found that there seems to be a hidden variable in (C). Saying "the efficiency of oil-fired power plants increased," (C) in fact means that the factories can produce more units of power from one barrel of oil than they did before.
Let's say now these plants can produce 1,100 units of power, instead of 1,000 units, from one barrel. Now, even though the costs of producing 1,000 units of solar power has fallen to $32, the solar power developers would still pay $32*1.1=$35.2 to produce 1,100 units of power. Hence, the "threshold" returns to $35 again--unless the oil prices surpasses $35, solar power would not be an economical option.
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It is not my intention to turn a CR question into a quant question (plugging numbers method?), but for now I cannot think of other methods to explain why (C) works. I think that my method is not unclear, but I am afraid that I do not have this time in the real test. Could you share your approach for this question?
I personally think that this question is hard because of the term "threshold of economical viability," which is more abstract than "oil prices." Some smart experts have pointed out that this "threshold" would be affected by the
relative efficiency/costs of two energies, and they are right. But CR questions can always present a new idea with a definition that we never see before. Under such circumstances, how do we most efficiently tackle the questions containing new ideas? If plugging number is my cup of tea, would you advice me to continue with this tool?
Sorry that my questions might be a bit general.
Thank you for your time and thoughts.
GMATNinja wrote:
Now back to our example... oil plants are currently more economical than solar plants. If the price per barrel of oil goes above $35 per barrel (the threshold of economic viability), solar will become the more economical option. The cost of converting solar energy into electricity has gone DOWN, so we would expect the threshold of economic viability to DECREASE from $35 per barrel. However, the threshold has not changed. We need an answer choice that helps explain why that might be the case:
Quote:
(C) Technological changes have increased the efficiency of oil-fired power plants.
If the cost of converting solar energy into electricity goes DOWN, we would expect the threshold of economic viability to decrease. However, if the cost of converting oil into electricity goes down, we would expect the threshold to INCREASE. Thus, if the cost of converting solar AND the cost of converting oil BOTH decrease, the expected changes to the threshold could cancel each other out (one makes the threshold go up, the other makes the threshold go down, so the threshold could remain the same). Choice (C) describes such a situation, so hang on to it.
KarishmaB wrote:
Note that the value of "the threshold of economic viability for solar power" has NOTHING to do with the actual price of oil. When we say that "the threshold of economic viability for solar power" is $35, it means that if the price of oil is $35, then solar power becomes viable. What is the actual price of oil has NO relevance to this measure. The other factors that decide the value of "the threshold of economic viability for solar power" are infra cost in the solar power plant and infra cost in the oil power plant. The difference between these two costs can be the price of oil (price of raw material for oil power plant). Price for raw material for solar power plant is 0 (sun's energy).
the threshold of economic viability for solar power = per unit infra cost in solar power plant - per unit infra cost in oil power plant
Actual price of oil has nothing to do with it.
gmat800live wrote:
For some reason, the explanations regarding why A is wrong didn't make sense to me. So here you have a very easy way to understand it:
You have two different ratios A and B.
A -> priceoil:oil:electricity
B -> pricesolar:solar:electricity
Now, the key is to understand that when we say "threshold is 35" that means we are saying than when we plug 35 on "priceoil", then A and B are the same. That's it! So now, if you tell me that solar:electricity ratio has improved, but that when I plug 35 on priceoil then A still equals B, the only way that can happen is if oil:electricity has improved. And note how "current price of oil" is not a factor here. Yes, priceoil is on the ratios, but we are forced to put 35 there, and it has nothing to do with current price of oil. Makes sense?
Done. I really hope this clarifies this once and for all.
preetamsaha wrote:
Reading this carefully, you will realize that the "price of oil" is a threshold that will not change unless the ratio of efficiencies of oil power equipment vs. solar power equipment increases or decreases. This is the ONLY thing that will change the threshold.
The question states that the efficiency of solar power equipment has increased. If the efficiency of oil power equipment has stayed the same, then the ratio of efficiencies of solar vs. oil power equipment should change. However, the anomaly the question is asking about is why the ratio has not changed. The ONLY way the ratio won't change despite the increased efficiency of solar power equipment is if the efficiency of oil power equipment increased by the same amount as the efficiency of solar power equipment.