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# Technological improvements and reduced equipment costs have

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Manager
Joined: 31 Dec 2016
Posts: 91

Kudos [?]: 11 [0], given: 22

Re: Technological improvements and reduced equipment costs have [#permalink]

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06 Aug 2017, 10:21
pedrotupy wrote:
VeritasPrepKarishma wrote:
rohansherry wrote:
153. 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:C...pls explain the meaning of the sentence,

It is a good tricky CR question. People with a quantitative bent of mind would love it, I am sure.
Let me put some numbers here to make it clearer. You need the numbers to understand that a paradox exists. Once you do understand that, resolving it is very simple.

Sunlight is free. Infra needed to convert it to electricity is expensive. Say for every one unit of electricity, you need to spend \$50 in a solar power plant.

Oil is expensive. Infra needed to convert it to electricity, not so much. Say for every one unit of electricity, you need to spend \$40 in an oil fired power plant. Say, the split here is \$25 + \$15 (\$25 is the cost of oil used and \$15 is cost of infra for a unit of electricity).

Oil based electricity is cheaper. If the cost of oil rises by \$10 to \$35, solar power will become viable.
This \$35 = the threshold of economic viability for solar power = the price per barrel to which oil would have to rise (mind you, this isn't the actual price of oil)

What happens if you need to spend only \$45 in a solar power plant for a unit of electricity? Would you expect 'the threshold of economic viability for solar power' to go to 30? Yes! Now, for solar viability, 'cost of oil + cost of infra in oil power plant' should be only \$45. 'Cost of infra in oil power plant' = 15 so we need the oil to go up to \$30 only. That will make solar power plants viable. So the threshold of economic viability should decrease.

But the threshold of economic viability for solar power is still \$35! It doesn't decrease. That is the paradox! How do you resolve it? By saying that 'Cost of infra in oil power plant' has also gone down by \$5 and is only \$10 now.

This is what the scene is like now:

Sunlight is free. Infra needed to convert it to electricity is expensive. For every one unit of electricity, you need to spend \$45 in a solar power plant.

Oil is expensive. Infra needed to convert it to electricity, not so much. For every one unit of electricity, you need to spend \$35 in an oil fired power plant. The split now is \$25 + \$10 (\$25 is the cost of oil used and \$10 is cost of infra for a unit of electricity).

You still need the oil price to go up to \$35 so that cost of electricity generation in oil power plant is also \$45. So you explained the paradox by saying that "Technological changes have increased the efficiency of oil-fired power plants." So, option (C) is correct.

If you think about it now, the actual price of the oil has nothing to do with 'the threshold of economic viability for solar power'. This threshold is \$35 so you need the oil to go up to \$35. Whether the actual price of oil is \$10 or \$15 or \$20, it doesn't matter. It still needs to go up to \$35 for solar viability. So option (A) is incorrect.

Sorry Guys, I just can´t agree with the reasons presented to eliminate A.

I Agree that C is a good choice, but A looks pretty fine to me:

Let´s imagine the cost for Solar energy is \$60

Oil Production is \$15 Plus the price of oil that is \$10, so the oil would have to rise \$35 in order for solar system be more effective tha oil´s.

If solar go down to \$55, and oil price go do by \$5 the difference remains the same...
the only thing that could make this choice "bad" is the word "dramatically"on it, but about that, it depends on the context since by my example the price of oil just went down by 50%!!

So, in my opinion this question just has two correct answer...

Thanks

Yes, I agree with this guy. Veritas Karishma is wrong and she made some bad assumptions that oil is under \$35.

Let's say the cost of solar starts the decade at \$135 and the price of oil is at \$100 and this is the only input cost. If the price of solar ends the decade at \$100 and oil drops to \$65 then it's remained unchanged!!!!

However what if there are other input costs for oil? Clearly we know an oil plant can have other costs. We don't know what % oil makes up the cost.

For C) We know that efficiency has increased. And we know the cost is unchanged at \$35. Therefore if the price of oil went up \$700 we would know the efficiency compensated for this still. So this answer is enough to explain the answer

I believe C is better as it encompasses more of the answer than A

Kudos [?]: 11 [0], given: 22

Re: Technological improvements and reduced equipment costs have   [#permalink] 06 Aug 2017, 10:21

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