Critical Reasoning

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.

Hi April24.

Look at what's going on here. We have a seeming paradox in that the cost of solar power generation has gone down, but somehow the oil price at which the use of solar power becomes economically advantageous has remained the same. So something is going on to keep that price in the same place place. Let's see what it is.

Some people like to prethink answers, but a variety of things could be going on here. So as long as one is clear about what exactly the prompt is saying and what the question is, then it probably makes sense to go to the answer choices to find our answer.

A) If one were not clear about what is going on, one might find this answer tempting, but the truth is that the cost of oil does not affect the threshold oil price at which solar power becomes more economical, at least not in any way that we can come up with without making up some long convoluted story. Long, unsupported, convoluted stories are not paths to getting CR questions right.

B) This does not affect the relative costs of solar power and oil burning.

C) Hmm. While the costs of solar power generation have gone down, from this statement it looks as if the costs of operating oil-fired plants have gone down too. So operating a new oil-fired plant at a certain oil price costs less than operating at that price did before. That would explain why the threshold price has remained the same. Technological changes have come to oil-fired generation as well.

D) This is irrelevant to a discussion of the threshold price at which solar power generation becomes more economical than oil burning generation.

E) If one were not paying attention, this choice might seem to have to merit, but while the dynamic described in this choice may help keep the price of oil stable, it does not affect the cost of operating a plant at a given oil price.

So by looking carefully at the logic of the prompt and the answer choices, we can tell that the only answer that makes sense is C.

Hi Marty,

I am still unable to understand how is A incorrect. Can you please elaborate?

[email protected] wrote:Hi Marty,

I am still unable to understand how is A incorrect. Can you please elaborate?

Cost Of Using Oil = Per Barrel Cost + Plant and Equipment Costs + Plant Operating Costs

Cost Of Using Solar = Cost Of Solar Plant and Equipment + Plant Operating Costs

Let's define the threshold of economic viability for solar power.

The threshold of economic viability is the price per barrel of oil such that when oil is at that price, solar power becomes economically viable.

That price is currently $35.

What happens to that threshold if the price of oil itself changes? Absolutely nothing.

Let's say the price of oil is $50 per barrel, and the threshold is $35 per barrel.

What's the threshold? $35 per barrel.

Now the price of oil goes the $10 per barrel. Would the threshold change? It would not.

Think about it. The threshold is a level that defines the economic viability of solar IF oil is at a certain price. If the price of oil is above the threshold, solar is economically viable. If the price of oil is below the threshold, solar is not economically viable. The only thing moving is the price of oil. The threshold does not move because the price of oil moves.

So, a change in the cost of oil itself does nothing to affect the threshold.

What could move the threshold?

Let's say that to get from solar the amount of energy the we get from a barrel of oil used to cost $35, but now the cost of operating a solar plant is lower than it was then. So now for $20 we can get from solar the energy of a barrel of oil. Likely, we won't be waiting for oil to get to $35 per barrel before we switch to solar. At $30 per barrel people will be running to solar.

Notice, the threshold didn't change because the cost of oil changed. It changed because the cost of operating solar plants changed, so solar competes better with oil.

How else could the threshold change?

What if oil were to compete better with solar because someone figured out how to build an oil fired plant that can run using only one employee. So the operating cost of using oil would go down. At that point, oil could compete with solar at a higher per barrel of oil price, because the higher per barrel price would be offset by the lower plant operating costs.