GMAT Question of the Day - Daily to your Mailbox; hard ones only

It is currently 11 Dec 2019, 05:14

Close

GMAT Club Daily Prep

Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.

Customized
for You

we will pick new questions that match your level based on your Timer History

Track
Your Progress

every week, we’ll send you an estimated GMAT score based on your performance

Practice
Pays

we will pick new questions that match your level based on your Timer History

Not interested in getting valuable practice questions and articles delivered to your email? No problem, unsubscribe here.

Close

Request Expert Reply

Confirm Cancel

Technological improvements and reduced equipment costs have made conve

  new topic post reply Question banks Downloads My Bookmarks Reviews Important topics  
Author Message
TAGS:

Hide Tags

Find Similar Topics 
Intern
Intern
avatar
B
Joined: 19 Aug 2017
Posts: 3
Re: Technological improvements and reduced equipment costs have made conve  [#permalink]

Show Tags

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
Veritas Prep GMAT Instructor
User avatar
V
Joined: 16 Oct 2010
Posts: 9869
Location: Pune, India
Re: Technological improvements and reduced equipment costs have made conve  [#permalink]

Show Tags

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.
_________________
Karishma
Veritas Prep GMAT Instructor

Learn more about how Veritas Prep can help you achieve a great GMAT score by checking out their GMAT Prep Options >
Veritas Prep GMAT Instructor
User avatar
V
Joined: 16 Oct 2010
Posts: 9869
Location: Pune, India
Re: Technological improvements and reduced equipment costs have made conve  [#permalink]

Show Tags

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.
_________________
Karishma
Veritas Prep GMAT Instructor

Learn more about how Veritas Prep can help you achieve a great GMAT score by checking out their GMAT Prep Options >
Intern
Intern
avatar
B
Joined: 04 Apr 2019
Posts: 23
Location: Spain
GMAT 1: 720 Q41 V48
WE: Business Development (Other)
Technological improvements and reduced equipment costs have made conve  [#permalink]

Show Tags

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.
Manager
Manager
User avatar
G
Joined: 13 Apr 2019
Posts: 181
Location: India
Concentration: Marketing, Operations
GMAT 1: 690 Q49 V35
GPA: 3.5
WE: General Management (Retail)
Reviews Badge CAT Tests
Re: Technological improvements and reduced equipment costs have made conve  [#permalink]

Show Tags

New post 15 Sep 2019, 22:29
nikhil.jones.s wrote:
I know that the crux of the solution is to eliminate one from A and C. But if we pick A as the right answer, we are assuming that the efficiency of Oil-Fired plants hasn't decreased and if we chose C as the right answer, we are assuming that the price of Oil either hasn't risen or doesn't affect the cost efficiency of Oil-Fired plants.
I am having loads of confusions like these I would be grateful if someone could clear this for me. :cry:


IMO think from a bird's eye perspective, what does the said metric represent ? It represents relative efficiencies of the two electricity producing technologies.

I hope this helps.
Intern
Intern
avatar
B
Joined: 23 Jul 2019
Posts: 3
Re: Technological improvements and reduced equipment costs have made conve  [#permalink]

Show Tags

New post 24 Sep 2019, 17:10
The long response in the first page gives me headache. Here is how I understand it:
1.Each unit energy cost $X for solar.
2.The threshold $T/barrel is the break even point of oil cost which means $X=$T x number of barrels.
3.$X dropped, $T is the same, => number of barrels has to drop which means efficiency has to increase.
Senior Manager
Senior Manager
User avatar
P
Status: Gathering chakra
Joined: 05 Feb 2018
Posts: 441
Premium Member
Re: Technological improvements and reduced equipment costs have made conve  [#permalink]

Show Tags

New post 03 Oct 2019, 13:45
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?


Pr1: Tech improved,reduced equipment costs == cost efficiency of s.p +
Cn: economic viability of s.p. compared to o.p. is unchanged despite these improvements

(A) The cost of oil has fallen dramatically.
New information, doesn't help us explain why s.p. is not viable over o.p. If the oil $ fell it should have increased the $35, not left it unchanged.

(B) The reduction in the cost of solar-power equipment has occurred despite increased raw material costs for that equipment.
New information, doesn't help explain why s.p. is not viable.

(C) Technological changes have increased the efficiency of oil-fired power plants.
This explains it because if o.p. cost also decreased then the $35 can remain unchanged.
Say s.p = 70, o.p. = 2, then both are reduced to be 35/1 ... still the same ratio.

(D) Most electricity is generated by coal-fired or nuclear, rather than oil-fired, power plants.
Out of scope, useless new information. We don't care about coal or nuclear, only comparison of solar to oil.

(E) When the price of oil increases, reserves of oil not previously worth exploiting become economically viable.
Out of scope, useless new information. We don't care about if oil reserves are economically viable, only construction of oil plants.
Manager
Manager
avatar
B
Joined: 11 Aug 2019
Posts: 59
Technological improvements and reduced equipment costs have made conve  [#permalink]

Show Tags

New post 12 Nov 2019, 16:00
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.



Hi Karishma VeritasKarishma,

Thanks for the very detailed explanation. I have a question - in your example, what happens if oil price actually decreases?
Say it decreases from $25 to $15. And imagine the cost of infrastructure increases from $15 to $30. Now for every one unit of electricity, we still have to pay $45.
Now comparing that with the $45 of new technology-solar, solar would still become economically viable. So answer choice A can be right if only we add that part of increased infra cost?


--

I think I have problem with this part:

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.


Why would I expect the oil to go up to $30 only if solar cost goes down to $45? Because then at $30 oil cost and $45 total spent on oil plant, I would have the two equal options: oil and solar, to choose from. But doesn't that also mean it can go 2 ways: either the cost of oil go down, or the cost of infrastructure go down. Either way can help us keep both prices the same; we'd have equal choices to choose from and none is better than the other since they'd both cost $45?

Why do we focus only on the crude oil prices when we decide the economic viability? Isn't it unrealistic? If crude oil prices were $35 (which is that threshold), but the cost of infra is somewhere like $3000, then isn't it more viable to use solar, and if the cost of infra is $1, then it's more viable to use oil?

Thanks.
Manager
Manager
avatar
B
Joined: 11 Aug 2019
Posts: 59
Re: Technological improvements and reduced equipment costs have made conve  [#permalink]

Show Tags

New post 12 Nov 2019, 19:04
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!


Hi GMATNinjaTwo,

You said, "The threshold only changes if the cost of converting oil to electricity changes or if the cost of converting solar energy to electricity changes." But the cost of converting oil to electricity is the combination of the cost of oil AND the cost of the technology. If the cost of oil changes, then wouldn't that affect the cost of converting oil to electricity, too?

Let's go back to your movie ticket example.

Say I get poorer, and I can no longer afford $10 tickets. My poor-ness (poverty sounds too dramatic) should push my threshold down to 5 dollars. However, the threshold doesn't change. What would resolve this paradox? Would you please resolve this paradox similarly to the way this solar/oil example is resolved?

Thanks! :angel:
Veritas Prep GMAT Instructor
User avatar
V
Joined: 16 Oct 2010
Posts: 9869
Location: Pune, India
Re: Technological improvements and reduced equipment costs have made conve  [#permalink]

Show Tags

New post 13 Nov 2019, 03:35
1
shabuzen102 wrote:
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.



Hi Karishma VeritasKarishma,

Thanks for the very detailed explanation. I have a question - in your example, what happens if oil price actually decreases?
Say it decreases from $25 to $15. And imagine the cost of infrastructure increases from $15 to $30. Now for every one unit of electricity, we still have to pay $45.
Now comparing that with the $45 of new technology-solar, solar would still become economically viable. So answer choice A can be right if only we add that part of increased infra cost?


--

I think I have problem with this part:

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.


Why would I expect the oil to go up to $30 only if solar cost goes down to $45? Because then at $30 oil cost and $45 total spent on oil plant, I would have the two equal options: oil and solar, to choose from. But doesn't that also mean it can go 2 ways: either the cost of oil go down, or the cost of infrastructure go down. Either way can help us keep both prices the same; we'd have equal choices to choose from and none is better than the other since they'd both cost $45?

Why do we focus only on the crude oil prices when we decide the economic viability? Isn't it unrealistic? If crude oil prices were $35 (which is that threshold), but the cost of infra is somewhere like $3000, then isn't it more viable to use solar, and if the cost of infra is $1, then it's more viable to use oil?

Thanks.


Focus on this very carefully:
"threshold of economic viability for solar power" has nothing to do with actual price of oil.

threshold of economic viability for solar power = 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

Solar plants become viable when
cost of producing 1 unit of electricity in solar plant = cost of producing 1 unit of electricity in oil plant

i.e. when
Cost of infra in solar plant per unit = Cost of oil + Cost of infra in oil plant per unit
This highlighted cost of oil is "threshold of economic viability for solar power"

So "threshold of economic viability for solar power" = Cost of solar plant infra - cost of oil plant infra

Now the argument tells us that cost of solar plant infra has decreased. The issue is that "threshold of economic viability for solar power" is still same. Why? Because cost of oil plant infra has also decreased.

NOTHING to do with actual price of oil.
_________________
Karishma
Veritas Prep GMAT Instructor

Learn more about how Veritas Prep can help you achieve a great GMAT score by checking out their GMAT Prep Options >
GMAT Club Bot
Re: Technological improvements and reduced equipment costs have made conve   [#permalink] 13 Nov 2019, 03:35

Go to page   Previous    1   2   3   [ 50 posts ] 

Display posts from previous: Sort by

Technological improvements and reduced equipment costs have made conve

  new topic post reply Question banks Downloads My Bookmarks Reviews Important topics  





Powered by phpBB © phpBB Group | Emoji artwork provided by EmojiOne