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Technological improvements and reduced equipment costs have made conve

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

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New post 23 Oct 2018, 12:56
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).



If the cost of oil goes down, the electricity from oil becomes more economical. at same time solar-powered energy is also becoming economical, doesn't it reduce both the costs and maintains the threshold value. As threhsold value is defined (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).
So if both goes down, the threshold should remain same ,as threshold depends on price difference.

Can't find reason to eliminate A over c
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Re: Technological improvements and reduced equipment costs have made conve  [#permalink]

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New post 24 Oct 2018, 04:56
Harshit2802 wrote:
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).



If the cost of oil goes down, the electricity from oil becomes more economical. at same time solar-powered energy is also becoming economical, doesn't it reduce both the costs and maintains the threshold value. As threhsold value is defined (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).
So if both goes down, the threshold should remain same ,as threshold depends on price difference.

Can't find reason to eliminate A over c


Check this link: https://gmatclub.com/forum/technologica ... l#p1031748
I have explained in detail why (A) is incorrect and (C) is correct. Do follow the numbers I have assumed to explain. They make the situation clear.
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Re: Technological improvements and reduced equipment costs have made conve  [#permalink]

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New post 18 Jun 2019, 00:57
VeritasKarishma 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.


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 (this $50 is the infra cost for solar power).

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 here).

Oil based electricity is cheaper. But if the cost of oil rises by $10 (from $25 to $35), solar power will become viable. Now, at both places, cost of one unit of electricity will be $50.
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.


Quote:
Can't we look at this that , even if the cost of oil has fallen but has the running cost of oil plant pulnged, so we are not sure
on the other hand in option C we are told that tchnology has improved electricity generated per barrel, making oil more economically viable and therefore solar threshold has not plunged


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.
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Technological improvements and reduced equipment costs have made conve  [#permalink]

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New post 08 Jul 2019, 12:19
I took me a while but I finally understood why A is wrong.

My mistake was that I was considering that in both situations the oil price had to increase in 35$ in order for Solar Plants to be profitable.
But what the question actually says its that the oil price had to rise to 35$ (price=35$). So if more efficient solar technology doesnt lower this "objective price" it means that oil plants have also improve efficiency.
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Technological improvements and reduced equipment costs have made conve   [#permalink] 08 Jul 2019, 12:19

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