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28 Oct 2023, 14:41
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Understanding the argument -
The question is relatively easy once you understand the argument. And the question's author has ensured that he/she packages it so that people scratch what just happened.
In a nutshell, the argument is that if $10 is required to make two units from solar power, the price of oil can still go as high as $35, and the power produced by oil is the cheaper of the two. How? What if I tell you that $35 in oil looks higher, but we get seven power units with the $35 spent on oil? (It means that for solar to produce seven units, they need to spend $35.) Okay, now the Solar Tech's do more research and bring the cost down to $5 to produce two power units. Now what? Solar should be better per unit of power. But did we lightly take the guys who are producing energy from oil? We should not. Say now they can produce in $35 they can produce 14 units of power. (For solar to produce fourteen units, they must spend $35.) Solar Techy works harder; they lower the solar price to $1 for two units. Guess what, guys who produce energy from oil? They work even harder to produce 70 units of power for $35.(For solar to produce seventy units, they must spend $35.) Keep the oil price constant here for understanding. We can make multiple combinations to complicate, but the argument has already done enough. We want to keep it simple for understanding.
This is what is happening. So you see, as the first statement of the argument says, "Tech advancement and blah blah...." reduced the cost of solar ideally, solar should have become the preferred choice for now, but instead, if the price per barrel of oil as long as it stays less than or equal to $35, the oil remains the preferred choice. So, the big culprit here is the efficiency of the oil power plants. The oil power plant efficiency kept the oil power plant as an economical option even when oil was at $35, and the solar went from $10 to $5 to $1.
Now, as the argument says - 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. - So if the oil per barrel goes above $35, then solar is an economical option, but the whole mess is to explain when the price of oil is equal to or below $35 why even damm cheap solar is still not cost-effective - that is because the oil power plants keep becoming super efficient to nullify the effect.
Sorry, it's a theoretical question because the efficiency of the oil power plant can't normally change so much. And that's the part that can confuse you as well. So once we understood the argument. Option elimination is relatively easy.
(A) The cost of oil has fallen dramatically. - does not matter as in the scope of our argument, as long as the oil is less than or equal to $35, the oil power plants stay the economical choice. Distortion.
(B) The reduction in the cost of solar-power equipment has occurred despite increased raw material costs for that equipment. - We don't care despite what blah blah the reduction happened. The paradox is that despite being cheaper, it's still not economical with oil power plants, out of scope.
(C) Technological changes have increased the efficiency of oil-fired power plants. - Ok.
(D) Most electricity is generated by coal-fired or nuclear, rather than oil-fired, power plants. - Did we discuss anywhere in the argument other than solar and oil power? No. This is out of scope.
(E) When the price of oil increases, reserves of oil not previously worth exploiting become economically viable. - Increases to what? $30 or $35 or $100 - we don't know. Does it resolve the paradox that despite solar being cheaper, it's still not economical with respect to oil power plants? No. Distortion.
The question is relatively easy once you understand the argument. And the question's author has ensured that he/she packages it so that people scratch what just happened.
In a nutshell, the argument is that if $10 is required to make two units from solar power, the price of oil can still go as high as $35, and the power produced by oil is the cheaper of the two. How? What if I tell you that $35 in oil looks higher, but we get seven power units with the $35 spent on oil? (It means that for solar to produce seven units, they need to spend $35.) Okay, now the Solar Tech's do more research and bring the cost down to $5 to produce two power units. Now what? Solar should be better per unit of power. But did we lightly take the guys who are producing energy from oil? We should not. Say now they can produce in $35 they can produce 14 units of power. (For solar to produce fourteen units, they must spend $35.) Solar Techy works harder; they lower the solar price to $1 for two units. Guess what, guys who produce energy from oil? They work even harder to produce 70 units of power for $35.(For solar to produce seventy units, they must spend $35.) Keep the oil price constant here for understanding. We can make multiple combinations to complicate, but the argument has already done enough. We want to keep it simple for understanding.
This is what is happening. So you see, as the first statement of the argument says, "Tech advancement and blah blah...." reduced the cost of solar ideally, solar should have become the preferred choice for now, but instead, if the price per barrel of oil as long as it stays less than or equal to $35, the oil remains the preferred choice. So, the big culprit here is the efficiency of the oil power plants. The oil power plant efficiency kept the oil power plant as an economical option even when oil was at $35, and the solar went from $10 to $5 to $1.
Now, as the argument says - 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. - So if the oil per barrel goes above $35, then solar is an economical option, but the whole mess is to explain when the price of oil is equal to or below $35 why even damm cheap solar is still not cost-effective - that is because the oil power plants keep becoming super efficient to nullify the effect.
Sorry, it's a theoretical question because the efficiency of the oil power plant can't normally change so much. And that's the part that can confuse you as well. So once we understood the argument. Option elimination is relatively easy.
(A) The cost of oil has fallen dramatically. - does not matter as in the scope of our argument, as long as the oil is less than or equal to $35, the oil power plants stay the economical choice. Distortion.
(B) The reduction in the cost of solar-power equipment has occurred despite increased raw material costs for that equipment. - We don't care despite what blah blah the reduction happened. The paradox is that despite being cheaper, it's still not economical with oil power plants, out of scope.
(C) Technological changes have increased the efficiency of oil-fired power plants. - Ok.
(D) Most electricity is generated by coal-fired or nuclear, rather than oil-fired, power plants. - Did we discuss anywhere in the argument other than solar and oil power? No. This is out of scope.
(E) When the price of oil increases, reserves of oil not previously worth exploiting become economically viable. - Increases to what? $30 or $35 or $100 - we don't know. Does it resolve the paradox that despite solar being cheaper, it's still not economical with respect to oil power plants? No. Distortion.
sanjay14765423
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Schools: Kelley '26 (S) Questrom '26 (S) Anderson '26 Broad'26 Darden '26 ESADE'26 Foster Fuqua '26 HEC Sep'24 Intake IE Sep'24 intake IESE '26 IMD Jan'24 intake Imperial'25 Ivey '25 Cornell '26 Rice Jones '26 Judge '25 Kenan-Flagler '26 McCombs '26 Oxford Said'25 McDonough '26 Mendoza '26 Olin '26 Owen '26 Rotman '26 Scheller '26 SDA Bocconi'25 Tepper '26
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12 Nov 2023, 11:51
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Iam confused on this question. Someone pls help. Iam not able to eliminate A.
why would the actual price of oil doesn't matter?
For example,
Let us assume the cost to produce electricity by solar plants is 100$/unit
Let's say the cost to produce electricity by oil plants is 65$/unit
Here, the price of oil should increase by 35$ to make the solar based electricity economically viable.
Now let's say due to technological advancements, the cost to product electricity by solar plants has become 50$/unit
Now, if the oil price has reduced, then the cost to produce electricity will also reduce, let's say it became 15$/unit, then the threshold will remain unchanged.
What am i doing wrong here? Pls help.
why would the actual price of oil doesn't matter?
For example,
Let us assume the cost to produce electricity by solar plants is 100$/unit
Let's say the cost to produce electricity by oil plants is 65$/unit
Here, the price of oil should increase by 35$ to make the solar based electricity economically viable.
Now let's say due to technological advancements, the cost to product electricity by solar plants has become 50$/unit
Now, if the oil price has reduced, then the cost to produce electricity will also reduce, let's say it became 15$/unit, then the threshold will remain unchanged.
What am i doing wrong here? Pls help.
01 Jan 2024, 21:33
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cool_jonny009
In this video, this question is discussed along with a discussion on how to solve 'Explain the paradox' questions:
