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Point of price viability

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Point of price viability

by forgetneoiamtheone » Sun Jul 06, 2008 5:27 pm
This is explain a paradox question from Princeton Review CAT.

Innovations in production technology and decreases in the cost of equipment have made recycling paper into new paper products much more cost-efficient over the last twenty years. Despite these advances, though, the "point of price viability"(the price that new paper made from trees must reach to make recycled paper comparable in price) is unchanged at $2.12 per ream of paper.

Which of the following, if true, most explains why the increased cost-efficiency of recycled paper has not lowered the point
of price viability?

A) The cost of unprocessed trees to make new paper has fallen dramatically.

B) The decreased in the cost of recycling equipment have occured despite
increased in the cost of raw materials required to manufacture such equipment.

C) Innovations in production technology have made it much more cost-efficient to produce new paper from trees.

D) Most paper is made from the scraps and sawdust left after processing new trees for lumber,
rather than directly from the tree themselves

E) When the price of planting new saplings to replace cut trees becomes more expensive,
forests reserves not previously worth cutting become cost-effective to cut.

I do not fully agree with the OA C.

Please explain why your choice is the best. Thanks.
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by Mahalo » Sun Jul 06, 2008 5:50 pm
IMO (C) - Innovations in production technology have made it much more cost-efficient to produce new paper from trees.

The argument states that the cost of new paper made from trees has remain unchanged. Therefore, some other factor must be responsible for answering the question in the argument.

(C) is a possible solution.
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by forgetneoiamtheone » Sun Jul 06, 2008 8:05 pm
Actually I read it as: "C" should reduce the cost of new paper from trees, since it has also becom cost-efficient just as new paper from recycling has.

Option "A" also talks about decrease in cost of new paper from trees.

So under these both circumstances the number $2.12 per ream should go down. The argument ,though, says it remains unchaned.

Either of these answers do not address both sides of the paradox, IMO.
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by nitin86 » Wed Jul 09, 2008 6:34 am
forgetneoiamtheone wrote:Actually I read it as: "C" should reduce the cost of new paper from trees, since it has also becom cost-efficient just as new paper from recycling has.

Option "A" also talks about decrease in cost of new paper from trees.

So under these both circumstances the number $2.12 per ream should go down. The argument ,though, says it remains unchaned.

Either of these answers do not address both sides of the paradox, IMO.

First of all $2.12 is not the price of the new paper, it is the "point of price viability"....i.e the price to which the cost of making new paper should RISE, in order for the recycled paper to be comparable in price to new paper.

This also means that cost of making recycled paper > cost of making new paper...

And argument talks about that though there have been so many technological advances for the cost of making recycled paper to go down..but still as compared to cost of making new paper it has remained at $2.12.

This is only possible, if there have been technological advances in making new paper to keep its cost low...
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by NSNguyen » Wed Jul 09, 2008 7:13 am
There are two type of paper
1. recyced paper ( paper made from recyced paper, sawdust..)

2. new paper( made from tree)

when the recyced paper getting cheaper.
However the price of viability keep unchanged.
So that new paper must be produced cheaper to keep with recyced paper
-> C is the best
:shock:
Please share your idea and your reasoning :D
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by newera » Wed Jul 09, 2008 11:12 am
Definitely C.

Paradox: recycled paper isn't any cheaper than new paper despite that its cost-effective.

Immediate thought regarding possible reason: cost of new paper is low

Answer C tells us that just as with recycled paper, new paper production is also cost effective.
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by clickclickdecker » Mon Apr 05, 2010 6:37 am
I know that this is a very old thread, but I just came across this question in the PR CAT and I can't make heads or tails of it. I didn't want to open a new thread, so I'll just post here; unfortunately none of the previous postings convinces me.
In my opinion, answer C doesn't resolve the paradox at all. Answer C might explain why new paper made from trees doesn't reach the point of price viability, but it has nothing to do with the point of price viability itself.
IMO, none of the answer choices is correct. A possible explanation would be something like "recently a tax on recycled paper which offsets the cost reduction was established". Anything to do with the price of recycled paper. Does anyone else share my opinion that this is a poorly phrased question or can anyone help shed some light on why C is correct?
Thank you very much in advance!
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by harshavardhanc » Mon Apr 05, 2010 7:08 am
clickclickdecker wrote:I know that this is a very old thread, but I just came across this question in the PR CAT and I can't make heads or tails of it. I didn't want to open a new thread, so I'll just post here; unfortunately none of the previous postings convinces me.
In my opinion, answer C doesn't resolve the paradox at all. Answer C might explain why new paper made from trees doesn't reach the point of price viability, but it has nothing to do with the point of price viability itself.
IMO, none of the answer choices is correct. A possible explanation would be something like "recently a tax on recycled paper which offsets the cost reduction was established". Anything to do with the price of recycled paper. Does anyone else share my opinion that this is a poorly phrased question or can anyone help shed some light on why C is correct?
Thank you very much in advance!


I imagined this scenario on the price line as shown below :


(recycled paper was dearer than new paper, hence it is shown towards right of new paper)


new paper ----------------recycled paper
_|_________________________|
--|---------------$2.12------------------|


The paradox is : with advances in technology, though it has become cheaper to recycle paper, the difference of $2.12, between recycled and new paper, has remained as it was.

i.e, the difference should have reduced and price of recycled paper should have come nearer to new paper as shown below:

new paper ----recycled paper
_|________________|
--|------<$2.12-----------|



but it has not.

One possible reason,

price of getting new paper from trees has reduced as well and has moved further to the left on price line.

C paraphrases this .
Regards,
Harsha
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by clickclickdecker » Mon Apr 05, 2010 7:35 am
@harshavardhanc: Thank you for the graphic visualization. That certainly makes the problem more accessible.
harshavardhanc wrote: The paradox is : with advances in technology, though it has become cheaper to recycle paper, the difference of $2.12, between recycled and new paper, has remained as it was.
I'm afraid that I don't agree with you that the point of price viability is a difference. It is rather "the price that new paper made from trees must reach". In your representation that would be a point on the price line. At least that would be my interpretation. Maybe that's the problem, though.
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by harshavardhanc » Mon Apr 05, 2010 7:37 am
clickclickdecker wrote:@harshavardhanc: Thank you for the graphic visualization. That certainly makes the problem more accessible.
harshavardhanc wrote: The paradox is : with advances in technology, though it has become cheaper to recycle paper, the difference of $2.12, between recycled and new paper, has remained as it was.
I'm afraid that I don't agree with you that the point of price viability is a difference. It is rather "the price that new paper made from trees must reach". In your representation that would be a point on the price line. At least that would be my interpretation. Maybe that's the problem, though.
add this to your analysis : to make recycled paper comparable in price
Regards,
Harsha
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by nipunkathuria » Sun Aug 22, 2010 7:57 pm
harshavardhanc wrote:
clickclickdecker wrote:@harshavardhanc: Thank you for the graphic visualization. That certainly makes the problem more accessible.
harshavardhanc wrote: The paradox is : with advances in technology, though it has become cheaper to recycle paper, the difference of $2.12, between recycled and new paper, has remained as it was.
I'm afraid that I don't agree with you that the point of price viability is a difference. It is rather "the price that new paper made from trees must reach". In your representation that would be a point on the price line. At least that would be my interpretation. Maybe that's the problem, though.
add this to your analysis : to make recycled paper comparable in price
Option A also goes along the same line..A also seems to be a plausible option by this reasoning.
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by DarkKnight » Mon Aug 23, 2010 5:14 pm
For all who picked C, Whats the reasoning behind ruling out A??? Please explain.
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by FightWithGMAT » Tue Aug 24, 2010 5:54 am
DarkKnight wrote:For all who picked C, Whats the reasoning behind ruling out A??? Please explain.
A says that the cost of raw material has decreased.
It does not say anything about the overall production cost, which includes the manufacturing cost as well.

It might have been the case that production cost (conversion cost) of new paper has increased, ultimately increasing the overall prod cost.
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by giovanni.gastone » Sun Apr 10, 2011 7:14 pm
Guys, here are the official explanations from PrincetonReview (copied and pasted). I suspect either the question is flawed, or we don't know what answer choice A is exactly saying.

A. No. Remember, "explains" is a clue that it's a resolve the paradox question. Why is the recycled/new paper price still the same, even though recycling paper has become more cost-efficient? This answer choice should lower the point of price viability, so it doesn't resolve the paradox.

B. No. Remember, "explains" is a clue that it's a resolve the paradox question. Why is the recycled/new paper price still the same, even though recycling paper has become more cost-efficient? This is out of scope. This answer choice introduces yet another paradox. Now we don't know how recycling equipment costs could have gone down, and we still don't know anything about the point of price viability.

C. Yes. Remember, "explains" is a clue that it's a resolve the paradox question. Why is the recycled/new paper price still the same, even though recycling paper has become more cost-efficient? Here, we learn that the prices for producing new paper have also dropped; so it makes sense that the prices for new and recycled paper are still at the same point of price viability.

D. No. Remember, "explains" is a clue that it's a resolve the paradox question. Why is the recycled/new paper price still the same, even though recycling paper has become more cost-efficient? This is out of scope. It doesn't matter how the paper from new trees is made; it just matters that the price is the same relative to that of recycled paper.

E. No. Remember, "explains" is a clue that it's a resolve the paradox question. Why is the recycled/new paper price still the same, even though recycling paper has become more cost-efficient? This is out of scope. This tells us nothing about the price relationship, nor about recycled paper. It only gives a random (and useless) fact about tree cutting.
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by Geva@EconomistGMAT » Sun Apr 10, 2011 11:00 pm
forgetneoiamtheone wrote:This is explain a paradox question from Princeton Review CAT.

Innovations in production technology and decreases in the cost of equipment have made recycling paper into new paper products much more cost-efficient over the last twenty years. Despite these advances, though, the "point of price viability"(the price that new paper made from trees must reach to make recycled paper comparable in price) is unchanged at $2.12 per ream of paper.

Which of the following, if true, most explains why the increased cost-efficiency of recycled paper has not lowered the point
of price viability?

A) The cost of unprocessed trees to make new paper has fallen dramatically.

B) The decreased in the cost of recycling equipment have occured despite
increased in the cost of raw materials required to manufacture such equipment.

C) Innovations in production technology have made it much more cost-efficient to produce new paper from trees.

D) Most paper is made from the scraps and sawdust left after processing new trees for lumber,
rather than directly from the tree themselves

E) When the price of planting new saplings to replace cut trees becomes more expensive,
forests reserves not previously worth cutting become cost-effective to cut.

I do not fully agree with the OA C.

Please explain why your choice is the best. Thanks.
I've seen a similar question on the GMATPREP - it's difficult, but legit.

the key is understanding that the argument does not talk about the price of paper - it discusses the state of a "tipping point" at which it is worth it to move from making new paper to recycling paper.

We begin with an initial tipping point of 2.12. the actual price of paper is unknown, and its irrelevant: if paper costs less than 2.12 (say 1.5 dollars), it's cheaper to make new paper, and if paper costs more than 2.12 (say $10), then it's cheaper to recycle paper. But we don't know the actual price of paper - we just know where the tipping point between the two is located.

Now, over time, recycling paper becomes more cost effective through technology, so we'd expect the tipping point to shift downward: for example, we'd expect it to be worth it to shift to recycling paper already at $1.5 per ream, because making recycled paper costs less now. Again, this says nothing about the actual price of paper - just an expected shift in the tipping point between the two forms.

The argument then claims that despite this expectation, the tipping point did not shift, and still remains at $2.2. All we can really conclude from this is that some opposing force contrived to keep the point at the same place: if the previous paragraph describes a shift in favor of recycled paper, we're looking for an opposing force that makes new paper more cost efficient as well. C does that: If C is true, then making new paper has also grown cheaper alongside recycling paper, so that the point at which it is cost-effective to shift from one to the other actually remains at the same $2.2.

A is a nasty trap designed to prey on those test takers who do not manage to understand what "the "point of price viability"(the price that new paper made from trees must reach to make recycled paper comparable in price) means. Throughout this argument, we don't know and we don't care about the actual price of paper - we just need to explain why the tipping point between the two technologies has not changed.
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