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Question: Chandler Oil Company has 5000 barrels of oil 1 and 10000 barrels of oil 2. The company sells two products: gasoline and heating oil. Both products are produced by blending oil 1 and oil 2. The quality level of each oil is as follows: 10 for oil 1; 5 for oil 2. Gasoline must have an average quality level of at least 8, and heating oil at least 6.

Demand for each product must be created by advertising. Each dollar spent advertising gasoline creates 5 barrels of demand and each dollar spent on heating oil creates 10 barrels of demand. Gasoline is sold for $25 per barrel, heating oil for $20. Formulate and solve an LP to help Chandler maximize profit. Assume that no oil of either type can be purchased. Please also clearly define the decision variables.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M92607874

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