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QOTD: Technological improvements and reduced equipment

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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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Re: 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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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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Re: QOTD: Technological improvements and reduced equipment [#permalink]

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New post 01 Sep 2017, 11:30
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.

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Re: QOTD: Technological improvements and reduced equipment [#permalink]

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I think this question is a bit too hard, even at the 800 level. One has to gauge the definition of "economic viability" under a minute and no the explanation in brackets doesn't help much but confuses the reader more.

In this question, economic viability is actually defined as:

Oil is more Efficient ------$35------ Solar is more Efficient

Threshold is NOT a range. It's a mark on a line.

Because one cannot readily compare efficiency of 2 processes, the question poses $35 as an arbitrary unit of measurement to compare the 2. In particular the statement " the price per barrel to which oil would have to rise in" is tricky as HELL. "Rise to" (the to before which) basically means goes above $35. Reading this..most of us thought it's a range when it's basically a mark on the line.

Knowing this, the question tells us that solar has become more efficient, so the line should look like:

Oil is more Efficient ------$30 (or anything less than $35)------ Solar is more Efficient

Because solar is now more competitive, the threshold decreases. Before oil can be at $34 and still be the better choice, now it has to be at $29 to be the better choice - again due to the increased competitiveness of solar. But the question tells us that the threshold stays at $35. We know that if Solar++ efficiency then threshold decreases, thus if Oi++ efficiency the threshold increases! Most importantly, ONLY efficiency can CHANGE the threshold.



Now let's fly past by the choices:

(A) The cost of oil has fallen dramatically.
*Don't care. Doesn't talk about efficiency.
(B) The reduction in the cost of solar-power equipment has occurred despite increased raw material costs
for that equipment.
*Details regarding solar efficiency, don't care.
(C) Technological changes have increased the efficiency of oil-fired power plants.
* This is exactly what we are looking for: Oil++ efficiency.
(D) Most electricity is generated by coal-fired or nuclear, rather than oil-fired, power plants.
* This is an answer from a galaxy far far away.....yea Out of Scope.
(E) When the price of oil increases, reserves of oil not previously worth exploiting become economically
viable.
* Don't care. Doesn't talk about efficiency.

[Reveal] Spoiler:
Answer: C

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Re: QOTD: Technological improvements and reduced equipment [#permalink]

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New post 23 Oct 2017, 00:38
GMATNinja wrote:
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.



Hi

I am still not clear as to why option A is not correct. Pls clarify my line of reasoning.
If the threshold value has not decreased then might be the cost of oil decreased or the cost of conversion of oil to electricity decreased.
and option A says the first case that cost of oil decrease and that reduces the overall cost of producing electricity from oil.

Pls point out where I am deviating?

Regards
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Re: QOTD: Technological improvements and reduced equipment [#permalink]

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Hi

I am still not clear as to why option A is not correct. Pls clarify my line of reasoning.
If the threshold value has not decreased then might be the cost of oil decreased or the cost of conversion of oil to electricity decreased.
and option A says the first case that cost of oil decrease and that reduces the overall cost of producing electricity from oil.

Pls point out where I am deviating?

Regards
Shoumodip

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

The threshold value is NOT affected by the price per barrel.

For example, say that my "threshold" movie ticket price is $10. In other words, if tickets are under $10, I'm willing to pay. If the movie theater cuts costs and ticket prices drop, that doesn't impact my "threshold" movie ticket price.

In this example, we can infer that the cost per barrel is currently LOWER than the threshold value of $35. So let's say it's currently $30 per barrel. If the price per barrel drops from $30 to $10, that does not change the threshold. The threshold only changes if the cost of converting oil to electricity changes or if the cost of converting solar energy to electricity changes.

I hope that helps!
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Re: QOTD: Technological improvements and reduced equipment [#permalink]

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New post 08 Nov 2017, 22:46
B and D are obviously wrong.
A can be eliminated b/c the reduction in the threshold can occur at the same time with the fall of the price of oils.
E is a trap even though E connects with economical point. E is wrong b/c of "Reserved oil" and same to A, the reduction in the threshold can occur at the same time with Reserved oil.

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New post 18 Nov 2017, 14:41
If a person does not know what is threshold concept used in this ques -> he/she can mark A ,and if he/she knows => then he/she will mark C..
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QOTD: Technological improvements and reduced equipment [#permalink]

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New post 18 Nov 2017, 14:53
GMATNinjaTwo wrote:
Quote:
Hi

I am still not clear as to why option A is not correct. Pls clarify my line of reasoning.
If the threshold value has not decreased then might be the cost of oil decreased or the cost of conversion of oil to electricity decreased.
and option A says the first case that cost of oil decrease and that reduces the overall cost of producing electricity from oil.

Pls point out where I am deviating?

Regards
Shoumodip

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

The threshold value is NOT affected by the price per barrel.

For example, say that my "threshold" movie ticket price is $10. In other words, if tickets are under $10, I'm willing to pay. If the movie theater cuts costs and ticket prices drop, that doesn't impact my "threshold" movie ticket price.

In this example, we can infer that the cost per barrel is currently LOWER than the threshold value of $35. So let's say it's currently $30 per barrel. If the price per barrel drops from $30 to $10, that does not change the threshold. The threshold only changes if the cost of converting oil to electricity changes or if the cost of converting solar energy to electricity changes.

I hope that helps!



Hello,

I just have one doubt after reading your comment, your Threshold =10 USD for ticket, if ticket value 12 USD you will not purchase, and if 8 USD you will.
And then you said ticket value will not change your threshold => and then you said same applicable for Oil example of $35.

This is what i think.
Oil price down => The amount of energy produced in let say when oil price was 50 is x , now the price has fallen dramatically=> say 10 => amount of energy will be more with same amount of oil 50 as you can purchase 5times more oil so your output increased.

Now you say oil price does not affect Threshold = which is Fine as per you, But how technological improvement will affect -> they will also increase efficiency or in other words MORE OUTPUT from oil fired plants , same was in the case when oil prices dropped dramatically..


GMATNinjaTwo Kindly explain and clear my doubt.
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Last edited by sahilvijay on 18 Nov 2017, 21:42, edited 2 times in total.

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Re: QOTD: Technological improvements and reduced equipment [#permalink]

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New post 18 Nov 2017, 21:19
sahilvijay wrote:
If a person does not know what is threshold concept used in this ques -> he/she can mark A ,and if he/she knows => then he/she will mark C..



wow, you come from the U.S., and you are studying Engineering in Transportation; You have GPA 4.0
That is amazing. I guess you will certainly et invited to interview for grad school already.

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QOTD: Technological improvements and reduced equipment [#permalink]

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New post 18 Nov 2017, 21:30
chesstitans wrote:
sahilvijay wrote:
If a person does not know what is threshold concept used in this ques -> he/she can mark A ,and if he/she knows => then he/she will mark C..



Wow, you come from the U.S., and you are studying Engineering in Transportation; You have GPA 4.0
That is amazing. I guess you will certainly et invited to interview for grad school already.


I am not from USA, but from India. I have converted my graduation marks into GPA as specified by GMAC. Yes , i have GPA4 ,which is awesome.
Also GMAT club does not have actual degree of what i have studied , i work in ships - so selected closely matching - transportation and engineering.
Chesstitan - if you can explain what i asked from gmat ninja, it will be nice.


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QOTD: Technological improvements and reduced equipment [#permalink]

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Hello,

I just have one doubt after reading your comment, your Threshold =10 USD for ticket, if ticket value 12 USD you will not purchase, and if 8 USD you will.
And then you said ticket value will not change your threshold => and then you said same applicable for Oil example of $35.

This is what i think.
Oil price down => The amount of energy produced in let say when oil price was 50 is x , now the price has fallen dramatically=> say 10 => amount of energy will be more with same amount of oil 50 as you can purchase 5times more oil so your output increased.

Now you say oil price does not affect Threshold = which is Fine as per you, But how technological improvement will affect -> they will also increase efficiency or in other words MORE OUTPUT from oil fired plants , same was in the case when oil prices dropped dramatically..


GMATNinjaTwo Kindly explain and clear my doubt.

If technological changes have increased the efficiency of oil-fired power plants, then we will, as you said, get MORE electricity from each barrel of oil. Let's say the price per barrel AND the threshold value are currently $35 (so we're right on the threshold). You buy a barrel for $35 and get some amount of energy from it. Then we have some technological changes that increase the efficiency of oil-fired power plants. So now we get the same amount of energy using less than $35 worth of oil. But what if the price of oil then goes up to, say, $40 per barrel? Well, that might be fine because now we don't need to use the full barrel to get the same amount of energy that we needed. In other words, we need less oil, so the price per barrel can increase without changing the net price per unit of energy.

Thus, the threshold value INCREASES when efficiency of oil-fired power plants increases, regardless of whether the actual price changes. Now, let's go back to $35 for the current price and for the threshold (again, right at the threshold). Now the price per barrel goes down to, say, $30 per barrel. Great, now we can spend less money to get the same amount of energy. But that doesn't change the THRESHOLD price. That's still sitting at $35 (based on all of the other variables). And if the price then goes up to $36 per barrel, we'll cross that threshold and new solar plants will be more economical.

Remember that the threshold value is a cost per barrel determined by several factors, such as 1) solar equipment costs, 2) cost of converting solar to electricity, and 3) cost of converting oil to electricity. The threshold price is determined by looking at specific values for all of the other variables. If we change one of those values, we change the threshold price. We can COMPARE the threshold value to the current price, but the current price does not AFFECT the threshold value. The current price simply tells us where we stand in relation to the current threshold value.

I hope that helps!
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QOTD: Technological improvements and reduced equipment [#permalink]

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New post 12 Dec 2017, 15:55
I thought about it like this: economic viability threshold = A (what does the cost of oil need to be) = X (the cost of production at a solar plant) - Y (the cost of production at an oil plant). The only way for A to stay the same after X decreased is for Y to decrease as well. Aka, increased efficiency in oil plants led to decrease in Y. Answer option A is misleading because Economic viability threshold is the measure of what the cost needs to be so you can't include the actual cost of oil in Y in the calculation above. Therefore, cost of oil will not impact the economic viability threshold aka itself. Answer = C

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QOTD: Technological improvements and reduced equipment   [#permalink] 12 Dec 2017, 15:55
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