CR: Technological improvements and reduced equipment costs

[cherryturanic]

This seems to be a popular (and quite misunderstood) problem, so I'm going to take one more stab at explaining this one:

The question is essentially asking why the threshold of economic viability has remained unchanged. In other words, why would the price of oil still have to hit $35 in order for solar powered plants to be a good idea?

A lot of people are asking why A isn't the correct answer. The best answer I can give is that the price of oil has nothing to do with how much the price *would* have to be in order for solar power to be viable. Consider this: if I have $20000 available to buy a car, the "threshold of economic viability" for me to buy a car is $20000. What if the price of a car is $30000? Doesn't matter, I still can't buy a car unless it's less than $20000. What if the price suddenly drops to $10000? Doesn't matter; even though I can now buy the car (yay), this price drop didn't change the fact that I could only buy a car if it were less than $20000. What would change my threshold of viability? NOTHING about the price of the car can change my threshold; my own personal threshold of $20000 would only be changed by something that had to do with my own purchasing power - I make more money, the bank gives me a better interest rate, etc.

In a similar sense, the reason the threshold of viability has not changed in this problem has nothing to do with the price of oil, but instead has to do with how cost-effective solar power is relative to oil power. C does this by providing a scenario in which efficiency increases in solar power are balanced by efficiency increases in oil power.

Hi Tim,
I've asked Ron about the interpretation of threshold viability. But I think your example is very interesting. So I want to hear your explanation also. Don't you think the scenario is kinda different between the question and your example? I mean the threshold viability is the oil price when the cost of solar power is equal to the cost of oil power. Am I right? Two factors could influence the cost: price and quantity. So why could you say price is irrelevant here? If the price is irrelevant, should the quantity, which is the standard of efficiency also be irrelevant?

[Suapplle]

Hi,instructors,
I am confused about choice A because I think if the cost of oil fall dramatically,the oil-fired power plants would be more economical(because the cost is lower),the same function like choice D
maybe I am wrong,please clarify,thanks!

[RonPurewal]

Hi,instructors,
I am confused about choice A because I think if the cost of oil fall dramatically,the oil-fired power plants would be more economical(because the cost is lower),the same function like choice D
maybe I am wrong,please clarify,thanks!

I have already addressed this exact issue earlier in the thread. Please read the entire thread.

Thanks.

[gmatkiller_24]

when reading the thread, it is just surprising for so many people to complicate the problem.


situation:

The solar is more cost-effective.

but

the economic viability remained unchanged.


Thinking:

there should have been external factor countering this effect.

A is out, because oil affect both technologies equally.


Can I tackle the problem in this way?

[douyang]

The threshold measures the difference in efficiency between the solar power plant and the oil-fired power plant. And the dollar amount is just a way to measure efficiency.

The problem says the solar power plant has became much more efficient but the threshold stays the same - this is the same as to say "the difference in efficiency between the solar power and oil-fired power plant is the same despite the fact that solar power plant has became much more efficient".

Therefore, the correct answer should be D. A is irrelevant here because price of oil has no definitive relationship with efficiency.

[RonPurewal]

your reasoning is correct-- assuming you meant to say C, not D.

[AndyH539]

Dear instructor,
The most difficult part was to understand the context, especially "the threshold of economic viability" part.
I think I finally understood the whole context. Can you pleae confirm if my understanding is correct?


If oil price rises to $35 or higher, solar power is more efficient than the oil-fired power plants. (This implies that current oil price is more likely to be less than $35)
And there are technical developmentss in the solar powers, and natually it is assumed that even if oil price does not rise to $35, (let's say to about $30), solar power can be more efficient than oil-fired power plant because it costs less to convert solar energy to the electicity.
But, oil still needs to be $35 (threshold does not change).
So it can be assumed that as solar plant becomes more efficient, oil-fired power plant also increased cost efficienty.

Thanks in advance.
Andy

[RonPurewal]

you have the idea.

[AndyH539]

Thanks for the confirmation!

Regards
Andy

[RonPurewal]

yep.

as you can see, the only real challenge here is 'WHOA so many words'. once you slog through the text and convert it into ideas that are easy to understand, it's plain what the issues are. (i.e., trying to 'break down the structure of the argument' is not a productive use of your time, since 'structure' poses no significant challenge.)

so, you should just DO WHATEVER YOU CAN TO ACHIEVE AN INTUITIVE UNDERSTANDING of the passage.
there it is—that's basically all of CR in nine words.

• in quantitative problems (like this one) you can 'plug in numbers', although you should exercise caution there (it's easy to get lost in irrelevant figuring, and you must take care not to choose extreme or otherwise unrepresentative numbers).

• more commonly, you can convert the words into everyday conversation.
this is especially potent if your first language is not english. if you can translate the passage into words THAT NORMAL PEOPLE WOULD ACTUALLY SAY in your language, then your mastery of it is essentially guaranteed.

• ...and you should also personalize the argument whenever possible (= put yourself into the place of a person or animal at the heart of the situation).

[gtckim]

Sorry to "beat a dead horse" (and to revive a very old thread!), but I still can't 100% understand the reasoning behind answer choice C. It seems like the general explanation that has been consistent through this thread is that the "threshold" is a value independent of the cost of oil. I get that the question defining the threshold as the price to which the price of oil would have to rise, thus disassociating the threshold from the fluctuations in oil cost.

However after this understanding, when I think about the causes actually affecting the threshold, I am still a bit confused. The discrepancy in this problem is that though solar efficiency is increased, the threshold remained the same. This implies that without some factor balancing the solar efficiency increases, the threshold would have been decreased. So we need to figure out what this "equalizer" here is.

Naturally at this point, answer C seems like the best fit. We have efficiency increases on the solar side, but the value relating the two (i.e., threshold) remains the same, so there must be efficiency increases on the oil side. Should my reasoning stop here?

I went further analyzing this question, and thought about what could be affecting the "efficiency" increases on the oil side. Sure, tech improvements could improve the efficiency, but if we measure efficiency as output of energy per dollar spent, wouldn't lowering the denominator of this relationship (i.e., dollar spent) increase the efficiency?

Again, I am probably overthinking -- thank you in advance for your help and patience!

[RonPurewal]

your thought process of 'if one gets more efficient, the other must have gotten more efficient, too' is the key here.

if you still don't understand why A is irrelevant, make an analogy.
let's say you are renting an apartment. (if you actually own your home, just pretend.)
let's define the 'moving threshold' as 'If the rent goes up to $____, I'll have to move out.'

okay. you have a number in mind.

if i tell you 'rent actually went down this year', there is clearly no effect on '$____' above. (you can certainly rejoice that you are now farther away from '$____', but the value of '$____' will not change.)

[RonPurewal]

if we measure efficiency as output of energy per dollar spent...

well, we can't do that, because common sense says we can't.

just think about what 'efficient' ACTUALLY MEANS (again, common sense): it means you use less fuel to do the same job.

• consider what it means for a car to be 'efficient' (= 'fuel-efficient').

• if the price of gasoline/petrol goes down... does my car become MORE EFFICIENT? well, no, clearly it doesn't.

[gtckim]

Thanks Ron -- Your rent analogy makes sense.

I guess my other confusion with this was that lower cost of oil impacts efficiency. As in, the cost of oil is a factor in measuring efficiency. I guess I was reading too much into it, since as you pointed out I wouldn't normally consider efficiency in those terms.

[RonPurewal]

I wouldn't normally consider efficiency in those terms.

^^ THIS is, essentially, 50 percent of the reason why CR is hard. (the other 50 percent comes from the dense, formal text in which the problems are written. our brains aren't built for formal text—they're 'designed' more for informal oral conversation—so there's a significant challenge in simply interpreting the words correctly.)

basically, the problem is that everyday common sense seems to vanish completely in any 'academic' environment. so, your challenge is to forget altogether that you're taking a test, and instead to visualize the problem as a real-world situation (in which you're personally involved, if that's possible).