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Critical Reasoning - Balzania Question

Let's discuss a GMAT Prep question that certainly deserves a full-fledged post of its own.

 

Twenty years ago, Balzania put in place regulations requiring operators of surface mines to pay for the reclamation of mined-out land. Since then, reclamation technology has not improved. Yet, the average reclamation cost for a surface coal mine being reclaimed today is only four dollars per ton of coal that the mine produced, less than half what it cost to reclaim surface mines in the years immediately after the regulations took effect.

Which of the following, if true, most helps to account for the drop in reclamation costs described?

(A) Even after Balzania began requiring surface mine operators to pay reclamation costs, coal mines in Balzania continued to be less expensive to operate than coal mines in almost any other country.

(B) In the twenty years since the regulations took effect, the use of coal as a fuel has declined from the level it was at in the previous twenty years.

(C) Mine operators have generally ceased surface mining in the mountainous areas of Balzania because reclamation costs per ton of coal produced are particularly high for mines in such areas.

(D) Even after Balzania began requiring surface mine operators to pay reclamation costs, surface mines continued to produce coal at a lower total cost than underground mines.

(E) As compared to twenty years ago, a greater percentage of the coal mined in Balzania today comes from surface mines.

 

The question talks about reclamation of mining land. Let's first understand some basics.

 

Mining for minerals leads to digging of the land, removal of minerals, high concentration of minerals in the top soil when they are removed and taken out from inside the Earth etc. Hence, once all the minerals are removed and the mine shuts down, that land becomes unusable for any other purpose. It needs to be reclaimed i.e. made usable again. Perhaps for agriculture or for construction or to set up forest areas etc. Since land is a finite and often scarce resource, Govt puts in the money to reclaim it and put it to some use.

 

20 years ago, Balzania put in place regulations requiring operators of surface mines to pay for the reclamation of mined-out land.

 

So as per the regulation put into effect 20 years ago, once the operator is done mining some land, he needs to pay the reclamation cost to the Govt (which will be different for different areas). The reclamation cost would be low in easily accessible, sea level areas but high in difficult topography say mountains. Say, to reclaim the land on which there was a particular mine, the Govt needed 20 million dollars. The Govt will take this money from the owner of the mine which was operating on that land once the mining is over.

When the owner of the mine makes his profit and loss statement and tries to figure out exactly how much profit he made per ton of coal he produced, he will calculate the reclamation cost he had to pay on each ton of coal. So say he produced total 5 million tons of coal from the mine and had to pay $20 million reclamation cost at the end, his reclamation cost per ton came out to be $4 per ton. Note that the land reclamation cost is a fixed cost. It is not variable as per tonnage. Every business has some fixed costs and some variable costs. E.g. rental of premises is a fixed cost but cost of raw material is variable (if we make more products, we need more raw material). Just like when you rent out a place and while leaving pay for any damages you may have caused to the place, you pay reclamation cost to the Govt for damaging the land. This cost is a fixed cost and doesn’t depend on how much business you did there or how many months you stayed there etc. But when you calculate your P/L, you may want to calculate in terms of cost per unit of product produced or cost per month lived in the place etc.

 

Since then, reclamation technology has not improved.

 

In the last 20 years, since the technology has not improved, the cost to reclaim the same kind of land has not decreased. It likely stayed the same or increased with inflation.

 

Yet, the average reclamation cost for a surface coal mine being reclaimed today is only four dollars per ton of coal that the mine produced, less than half what it cost to reclaim surface mines in the years immediately after the regulations took effect.
 

Now here is the curve ball – in absolute terms, though we expected the reclamation cost to be the same or somewhat higher because of inflation, it is actually less than half of what it was 20 years ago. So if for the mine owners, the average reclamation cost was turning out to be $10 per ton, today it is only $4 per ton.

How can the average reclamation cost per ton be less than half now?

 

Average Reclamation cost per ton = Total reclamation cost paid / Total tons of coal produced.

 

So then either the total reclamation cost paid by mine owners has reduced a lot, or the total tonnage of coal produced has increased a lot or both.

We need an option that explains this paradox. 

 

(A) Even after Balzania began requiring surface mine operators to pay reclamation costs, coal mines in Balzania continued to be less expensive to operate than coal mines in almost any other country.

 

Any other country is out of scope.

 


(B) In the twenty years since the regulations took effect, the use of coal as a fuel has declined from the level it was at in the previous twenty years.

 

This could be reason for reduced tonnage, certainly not for increased tonnage.

 


(C) Mine operators have generally ceased surface mining in the mountainous areas of Balzania because reclamation costs per ton of coal produced are particularly high for mines in such areas.

 

Mines are now not operating in the mountainous regions i.e. difficult topography. Reclamation costs were high there. Hence, now no mine owners need to pay high reclamation cost. Hence it explains why total reclamation cost could have gone down substantially. Hence, it explains why ‘average reclamation cost per ton’ could have gone down.

 


(D) Even after Balzania began requiring surface mine operators to pay reclamation costs, surface mines continued to produce coal at a lower total cost than underground mines.

 

Out of scope. Cost comparison with underground mines doesn’t help us.


(E) As compared to twenty years ago, a greater percentage of the coal mined in Balzania today comes from surface mines.

 

Percentage of the coal mined from surface mines (the mines in our scope) out of total coal mined every year (including from say underground mines or ocean floor mines etc) is irrelevant to us. It doesn’t tell us whether the actual amount of coal mined from surface mines has increased. Surface mines have a bigger piece of the pie but is the pie bigger than before, smaller than before or the same size, we don’t know. Hence, this option doesn’t help us.

 

Answer (C)

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