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QOTD: Technological improvements and reduced equipment

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QOTD: Technological improvements and reduced equipment [#permalink]

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Verbal Question of The Day: Day 94: Critical Reasoning


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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.

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[Reveal] Spoiler: OA

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QOTD: Technological improvements and reduced equipment [#permalink]

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Here we have an apparent discrepancy. Converting solar energy directly into electricity has become far more cost-efficient in the last decade. If that is the case, why hasn't the threshold of economic viability for solar power gone down? Let's make sure we understand what they mean by economic viability ("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").

We can infer that new oil-fired power plants are currently more economical than new solar power plants. If the cost per barrel of oil goes up, that would make the oil-fired option less and less economical compared to the solar option. Eventually, if the price per barrel of oil rises high enough, the oil-fired option will become LESS economical than the solar option (i.e. crossing the "threshold of economic viability for solar power").

Imagine that the two options are economically equal (so we're sitting just at the threshold of economic viability). If the cost of converting solar energy into electricity goes DOWN, solar will become the more economical option. However, if the price per barrel of oil also decreases OR if the cost of converting oil to electricity decreases, the two options could become economically equal once again.

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:
(A) The cost of oil has fallen dramatically.

The actual cost of the oil doesn't change the threshold. Rather, the price of oil simply determines whether we are above, below, or at the threshold. For example, if the threshold is $35 per barrel and the cost of oil falls from $30 per barrel to $5 per barrel, that would take us further away from the threshold but would not CHANGE the threshold itself. Eliminate choice (A).

Quote:
(B) The reduction in the cost of solar-power equipment has occurred despite increased raw material costs for that equipment.

We are only concerned with the cost of solar-power equipment, not the individual components of that cost. Even though the cost of the raw materials has increased, the overall cost of solar-power equipment has decreased. Thus, we would expect the threshold of economic viability to also decrease. Choice (B) does not explain the apparent discrepancy and can be eliminated.

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.

Quote:
(D) Most electricity is generated by coal-fired or nuclear, rather than oil-fired, power plants.

This passage is only concerned with comparing oil-fired and solar power plants. Other types of power plants are not relevant to the author's argument. Eliminate (D).

Quote:
(E) When the price of oil increases, reserves of oil not previously worth exploiting become economically viable.

As with choice (A), we only care about the threshold of economic viability. The source and the actual price per barrel of the oil do not affect the threshold. Eliminate (E).

Choice (C) is the best option.
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Re: QOTD: Technological improvements and reduced equipment [#permalink]

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New post 01 Sep 2017, 06:49
souvik101990 wrote:

Verbal Question of The Day: Day 94: Critical Reasoning


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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.


Every question of the day will be followed by an expert reply by GMATNinja in 12-15 hours. Stay tuned! Post your answers and explanations to earn kudos.


I will say it is C.

What we have.
1. Technology improved. Cost of equipment reduced ---> Solar plant became more efficient.
2. Treshold stayed unchaged (35 dollars).

Prethinking.
The main part here is to understand exactly what does "treshold of economic viability" mean.
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.
Now look at word "new" (I have written "new" in bold). It is a prompt given to us. That we have to compare solar plants with new technology with oil-plants with new technology. There is no explicit mentioning in the text. But "new" gives us this understanding.
Now lets consider some situations.
1. We have old solar plant and old oil plant. Treshold = 35. (Todays oil cost is 25. Oil plant is more economical) When barrel of oil costs 35, these two plants are equally economical.
2. We have new (technology, equipment) solar plant and old oil plant. (Todays oil cost is 25. Oil plant is more economical) Treshold != 35. It is reduced. Maybe it is 30 now. Why? Because solar plant has new technology and reduced cost of equipment - it is more eficient now. So the oil has to increase in prise less than in the first case these 2 kinds of plants to become equally economical.
3. We have old solar plant and old oil plant. Treshold = 35.
Price of oil increases to 40. Does it change the treshold? NO! It only makes solar plant more economical than oil plant.
Price of oil decreases to 20. Does it change the treshold? NO! It only makes solar plant even less economical than it was before.
4. We have new solar plant and new oil plant. Treshold = 35. It did not change. Because both plants increased their efficency (new technology, cheap equipment).
It seems like it is the answer we are looking for.

Now lets check the options.

(A) The cost of oil has fallen dramatically. We discussed it above. Oil price does not affect treshold. It only changes the level of "economical". Out.
(B) The reduction in the cost of solar-power equipment has occurred despite increased raw material costs for that equipment. It is not relevant in this case. Does not give information abouct any connection of solar and oil plants.
(C) Technological changes have increased the efficiency of oil-fired power plants. Nice. Our case №4.
(D) Most electricity is generated by coal-fired or nuclear, rather than oil-fired, power plants. Out os scope.
(E) When the price of oil increases, reserves of oil not previously worth exploiting become economically viable. Out of scope.

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QOTD: Technological improvements and reduced equipment [#permalink]

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New post 01 Sep 2017, 12:30
Ans Should be C as only this option provides a reason why oil price is still low (by saying that that oil fired power plants have also increased efficiency thereby reducing current oil price per barrel) . this ultimately proves that despite advancements made by solar industry, the oil industry is not far behind and hence threshold for solar power has not gone down.

Kudos [?]: 5 [0], given: 36

QOTD: Technological improvements and reduced equipment   [#permalink] 01 Sep 2017, 12:30
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