## CR: Technological improvements and reduced equipment costs

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cesar.rodriguez.blanco
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### CR: Technological improvements and reduced equipment costs

I do not know why C is best answer than A, or, in other words, why A is wrong?

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.
aaldrak
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### Re: CR: Technological improvements and reduced equipment costs

I'm with you mate, I still don't understand why A is wrong.

Lets say that to generate X amount of electricity, we can either get it through solar power (\$50), or through oil (\$15). The threshold (as I understood it to be the difference) would be \$35.

Now we built better tools for solar energy, and it only costs \$40 to generate the same X amount. However, the threshold remains \$35. How is that possible? A drop in oil prices could drop the \$15 to 5\$, which would then explain why \$35 remained the same.

Bizarre question.
nisarg
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### Re: CR: Technological improvements and reduced equipment costs

Can one of the tutors please assist with understanding this question? I am stumped here as well. Thanks!
dietric.williams
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### Re: CR: Technological improvements and reduced equipment costs

I'm not an instructor and I actually believed A was the correct answer as well. However, after looking closely at choice (C) i know see why it is correct. if the price of oil is unchanged AND oil-fired plants are now more efficient, due to improved technology, that would explain why the threshold of economic viability has not decreased for solar power plants (because oil-fired plants are running more efficiently).

In (A) if the price of oil drops, that decrease is only effective if the oil-fired plants maintain the same amount of oil consumption. For example if oil cost \$100/barrel and the company buys 50 barrels that's a \$5000 cost. But if oil drops to \$50/barrel and the company buys 200 barrels then it now cost them \$10,000 (that's not effective and would increase the solar power plants economic vialbility. So we can't assume that price is the determing factor. however, regardless of how much the company buys, if it's running burning oil more efficiently, it's still a costs saving vs if it wasn't running as efficiently.

Hope that makes sense?
hgursoy
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### Re: CR: Technological improvements and reduced equipment costs

lets look at this example.
Say one could produce 10 units of solar power electricity at 350 dollars ten years before. At that year a unit of oil fired at 30 dollars (say the price of oil was 30 dollars that year). So one can produce 10 units at 300 dollars. If the price of oil was 35 dollars. The cost of solar power and oil fired power would be same. So the thresold price of oil was 35 dollars.

Today one can produce say 20 units of solar power electricity at 350 dollars. It is because of tech. imp. But the thresold does not changed. That is to say, if the oil price is 35 dollars the costs will be same. So it says that one can produce 2 units of electricity with oil at same price. The price of oil does not change the thresold.

veronica.tong

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### Re: CR: Technological improvements and reduced equipment costs

I originally put A as well, but I now realize that the answer is C. I hope the following explanation will help.

The question here asks us to explain why the threshold of economic viability has not decreased from \$35, despite technological improvements in solar power equipment. The key to this question is to realize what the definition of economic viability is, as defined by the GMAT writers of this question. This specific definition can be found in the parenthesis in the question, the part where it says "(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)" This is where the "threshold of economic viability" is defined. Reading this carefully, you will realize that the "price of oil" is a threshold that will not change unless the ratio of efficiencies of oil power equipment vs. solar power equipment increases or decreases. This is the ONLY thing that will change the threshold.

The question states that the efficiency of solar power equipment has increased. If the efficiency of oil power equipment has stayed the same, then the ratio of efficiencies of solar vs. oil power equipment should change. However, the anomaly the question is asking about is why the ratio has not changed. The ONLY way the ratio won't change despite the increased efficiency of solar power equipment is if the efficiency of oil power equipment increased by the same amount as the efficiency of solar power equipment. For those who think more in terms of math: If the solar power equipment efficiency was originally "100" and the oil power equipment efficiency was originally "200", then the ratio of "old solar : old oil" is 100:200, or 1/2. Now, the solar power equipment efficiency increased, so let's say its efficiency is now "200". If the oil power equipment efficiency remained the same as before, the ratio of "new solar : old oil" would now be 200:200, or 1, which is a change from the original old ratio of 1/2. The only way the ratio of new solar : old oil would remain at 1/2 is if oil power equipment's efficiency increased to "400" from its original 200, making the ratio of new solar : new oil equal to 200:400, or 1/2, which is the same as the old ratio. This clearly demonstrates that the answer is C. That's the only answer that discusses technological improvements in oil power equipments that make it more efficient .

The reason why Choice A is wrong is because the cost of oil has no effect on this \$35 threshold. To understand this, I thought of the following two extreme scenarios:
1) Oil all of a sudden costs \$1 million / barrel (or some other ridiculous amount of money), does this change the threshold? No. The threshold is still at \$35. The fact that oil now costs \$1 million / barrel means that the threshold of \$35 is exceeded, which means it is now more efficient to use solar power equipment than oil power equipment. However, it doesn't mean the threshold of \$35 has changed.
2) Oil all of a sudden becomes free. It costs \$0. Does this effect the \$35 threshold? No. The threshold is independent of the cost of oil. Even if oil is free, the threshold for solar power equipment to become more efficient than oil power equipment is still \$35, because the efficiencies of the equipment do not depend on the price oil, they only depend on the technical abilities of the equipments. Now, you might say, doesn't that explain why the threshold of efficiency is unchanged? It does not. The reason why I showed two extreme scenarios is to show that the price of oil is IRRELEVANT to the threshold. If it CAN explain why the threshold of efficiency is unchanged, then one of the two extreme scenarios should change the threshold of \$35. However, I have shown both extreme scenarios and neither of them effect the threshold of \$35. Therefore, Choice (A) is irrelevant and is the wrong answer.
sandeep.19+man
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### Re: CR: Technological improvements and reduced equipment costs

Guys,

The passage 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

i.e. in effect it says:
the threshold of economic viability for solar power is unchanged
and that
the price per barrel is unchanged

The portion in bold says:
The price of oil will have to increase for solar power to be a viable option. But (A) says price of oil has fallen. Hence wrong.

We have to look for an option that says price of oil has increased (or any twisted form of this option). We are given solar has become cost-efficient but we do not know if it is cheaper than oil. Solar will only become a viable option if it is:
1. Cheaper than oil (cost efficient) AND/OR
2. More efficient than oil (efficiency in performance)

(C) says efficiency of oil has increased. Thus the cost efficiency of solar has increased but at the same time the efficiency of oil has also increased. Hence this one most helps explain why solar may not be a viable option.

Tutors, Am I on the right track?
mschwrtz
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### Re: CR: Technological improvements and reduced equipment costs

This question stem asks you to explain a discrepancy.

(1) Make the discrepancy explicit. Rephrase the two apparently paradoxical claims in your own simple, direct language. This is much harder here than is typical.

The threshold of economic viability is the price-per-barrel of oil at which electricity from solar power is about as expensive as is electricity from a new oil-fired plant. As the price of electricity from solar power comes down, we naturally expect that the threshold will come down.

The apparent paradox is that we would expect the threshold of economic viability to decline as electricity from solar power gets cheaper, but for some reason that threshold isn't changing.

It costs less to make electricity from solar power than it used to.
BUT
The threshold of economic viability is the same.

(2) Look for an answer that explains how both discrepant claims can be true at the same time. Don't try to anticipate an answer, though if one comes to you unbidden it may be right.

Notice that this has nothing to do with the actual price of oil, or with the actual viability of solar power, or with the actual source of electricity. So, Sandeep, this part of your answer is wrong: We have to look for an option that says price of oil has increased.

C is the right answer because it explains that the cost of electricity from a new oil-fired plant is not determined solely by the cost of the oil that that plant burns.

Suppose that solar electricity cost half what it did a decade ago. All other things being equal, you would expect that to halve the threshold (from 35 to 17.50). But if C is true, then all other things aren't equal. If you can get twice as much power from the same barrel of oil as you could a decade ago, then that will double the threshold (from 17.50 to 35).

So, Sandeep, this part of your answer is right: the cost efficiency of solar has increased but at the same time the efficiency of oil has also increased.
atgolsorkhi
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### Re: CR: Technological improvements and reduced equipment costs

I got it right but needed a little clarification. Top notch explanation.

Cost of Solar Energy/Cost of Oil-fired Energy=35

if cost of solar energy decreases and threshold remains 35, then cost of Oil-fired energy must have also decreased.

RonPurewal
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### Re: CR: Technological improvements and reduced equipment costs

atgolsorkhi wrote:mschwrtz, thanks for that answer.

I got it right but needed a little clarification. Top notch explanation.

Cost of Solar Energy/Cost of Oil-fired Energy=35

if cost of solar energy decreases and threshold remains 35, then cost of Oil-fired energy must have also decreased.

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lambandme
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### Re: CR: Technological improvements and reduced equipment costs

RonPurewal wrote:
atgolsorkhi wrote:mschwrtz, thanks for that answer.

I got it right but needed a little clarification. Top notch explanation.

Cost of Solar Energy/Cost of Oil-fired Energy=35

if cost of solar energy decreases and threshold remains 35, then cost of Oil-fired energy must have also decreased.

I'm not sure I understand the formula above. Initially I went for A because I thought it was the difference that remained the same instead of the threshold.

My formula is Threshold = P(solar)/Unit(solar) * Unit(oil) =the same. Unit(oil) is the number of units of power generated by a barrel of oil, while P(solar)/Unit(solar) is solar power's economic efficiency

By this formula, it's clear that oil price has nothing to do with the unchanged Threshold.

But I do not think a CR problem needs so much mathematical reasoning, I think I'm taking the long way here. So I wonder if you have any other easier ways to tackle this problem?
RonPurewal
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### Re: CR: Technological improvements and reduced equipment costs

lambandme wrote:But I do not think a CR problem needs so much mathematical reasoning, I think I'm taking the long way here. So I wonder if you have any other easier ways to tackle this problem?

you don't need the exact mathematical reasoning on problems like this; you just have to understand the contributions of different factors.

in this case, the problem is saying that solar power has gotten more efficient, but also that there has been no change in the target price of oil to achieve price equity with solar power. the only way this can be true is if something else related to oil-driven power, aside from the actual price of oil, has become cheaper in line with the improvements in solar power.
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ashutosh22
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### Re: CR: Technological improvements and reduced equipment costs

RonPurewal wrote:
lambandme wrote:But I do not think a CR problem needs so much mathematical reasoning, I think I'm taking the long way here. So I wonder if you have any other easier ways to tackle this problem?

you don't need the exact mathematical reasoning on problems like this; you just have to understand the contributions of different factors.

in this case, the problem is saying that solar power has gotten more efficient, but also that there has been no change in the target price of oil to achieve price equity with solar power. the only way this can be true is if something else related to oil-driven power, aside from the actual price of oil, has become cheaper in line with the improvements in solar power.

Hey Ron,

As mentioned in the question:
"Threshold of economic viability 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"

a) solar power has gotten more efficient
b) Threshold of economic viability was unchanged
i.e to generate 1 unit of electricity following was unchanged
COSTsolar_plant = COSToil_plant + Fraction (35\$)

To explain that Threshold (fraction of 35\$) remain constant, both COST must have been reduced by same quantity.

Now, lowered COSToil_plant can be explained by
(A) The cost of oil has fallen dramatically.
OR
(C) Technological changes have increased the efficiency of oil-fired power plants.

Am I thinking it wrong?

-Thanks
Ash
Last edited by ashutosh22 on Fri Nov 04, 2011 1:46 pm, edited 2 times in total.
ashutosh22
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### Re: CR: Technological improvements and reduced equipment costs

Just realized the issue,

Threshold did not change for NEW oil-fired plant
(implicit Threshold probably did change for OLD oil-fired plant)

Combine both and one can see that it can only be explained by increased efficiency of NEW oil-fired plant.

OMG that was a hard one.

Is there any simpler way to see that?
RonPurewal
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### Re: CR: Technological improvements and reduced equipment costs

ashutosh22 wrote:Now, lowered COSToil_plant can be explained by
(A) The cost of oil has fallen dramatically.
OR
(C) Technological changes have increased the efficiency of oil-fired power plants.

Am I thinking it wrong?

-Thanks
Ash

read the passage carefully: the conclusion is about "the price per barrel to which oil would have to rise (theoretically) in order for new solar power plants to be more economical".
therefore, we are thinking about a potential threshold price for oil at which something would happen. the current price of oil -- or, indeed, the current state of absolutely anything regarding oil -- is irrelevant, so you can strike choices a/c very quickly.

here's an analogy, if you don't understand:
let's say i'm looking at a pair of pants with a 32-inch waist.
if the passage discusses "the waist size i would have to reach to wear these pants", then that is 32 inches, regardless of my current waist size (which is completely irrelevant).
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