Ask Question, Ask an Expert

+61-413 786 465

info@mywordsolution.com

Ask Financial Accounting Expert

Supply and Demand Graph

To complete this assignment, address the following requests:

1. Based on the information from the US Energy Information Administration, create the supply and demand graph in the space below. This information is helpful for the client to know how much oil to produce.

2. Also identify the price and quantity at which equilibrium exists. This information is important for the client to determine the quantity of oil to produce for profit maximization. Identify this information on the supply and demand graph you created below.

3. Finally, determine if the oil and gas industry is in perfect competition, an oligopoly, or a monopoly. You may need to examine additional information on competition production and pricing decisions, monopoly production and pricing decisions, and price discrimination to answer this question. This information will help the client to determine pricing strategies. It might be helpful to know how many publicly traded companies exist globally. You might also want to read about how crude oil is priced.

4. Over the past 12 months, what has been the price range of regular unleaded gasoline, natural gas, and two or three types of crude oil? Traders and speculators can buy oil contracts for future delivery. Does this make the market perfect competition? (To answer this question, you may need to visit www.OilPrice.com, the American Petroleum Institute website, or the US Energy Information Administration website.)

Profit Maximization

Cal Overhaut operates an ExxonMobil gas station franchise in Fitzhugh, MD. The price of gasoline is volatile and varies greatly from day to day. The price per gallon varies based on the seasonal blend of gasoline, which is determined by clean-air requirements, and Cal's pricing choices are limited to the profit margin for his price.

He recently raised the price of gas by 1 cent per gallon, and his profit declined. Cal would like you to measure his business gains or losses based on the price of $2.779 per gallon.

Cal competes with a local brand on the opposite corner that typically sells gas for 4 to 5 cents per gallon less than his station. They are currently selling gasoline for $2.769 per gallon. Recently, regular gasoline for delivery in New York harbor sold for $2.074 per gallon.

To the right are additional charges that Cal must pay on each gallon of gasoline:

1. Cal sold 3,600 gallons per day at a price of $2.769 per gallon. He raised the price 1 cent to $2.779 per gallon, and revenues and profits dropped. His station sold 3,200 gallons per day at $2.779 per gallon.

What is the price elasticity of demand? Can the elasticity be characterized as elastic, inelastic, or neither? What does this mean and why does it matter? Will revenues increase or decrease as a result of the price cut? By how much? Cal tells you that his fixed costs are $50 per day. By how much did profits decline? (Profits are revenues minus all costs.)

2. After seeing your analysis of his decline in profit, Cal decides to lower the price of gas to $2.759 per gallon. After this change, the volume sold increased to 4,000 gallons per day. He asks you to measure his business gains or losses at $2.759.

What is the price elasticity of demand? Can the elasticity be characterized as elastic, inelastic, or neither? What does this mean and why does it matter? Will revenues increase or decrease as a result of the price cut? By how much? Cal tells you that his fixed costs are $50 per day. By how much did profits increase or decline? (Profits are revenue minus all costs.)

3. After seeing the result, Cal decides to lower his price once again to $2.749 per gallon. Once again, volume increases and settles at 4,400 gallons per day. He is worried that any further price cut will cause the discount station across the street to also lower it price. He wants to know what his price should be.

What is the price elasticity of demand? Can the elasticity be characterized as elastic, inelastic, or neither? What does this mean and why does it matter? Will revenues increase or decrease as a result of the price cut? By how much? Cal tells you that his fixed costs are $50 per day. By how much did profits increase or decline? (Profits are revenue minus all costs.)

4. Cal's son is studying in the MBA program at UMUC. He tells his father that profit maximization occurs when marginal cost (MC) = marginal revenue (MR). Cal asks you for a definition of each. You tell Cal that his marginal cost is the same as his variable cost, or $2.661 per gallon.

Marginal revenue is more difficult. Marginal revenue is the increase in total revenue from selling one more unit or gallon. You decide that if a price change of 1 cent causes demand to change by 400 gallons, then a price change of 1 cent divided by 400 gallons is the price change to sell one more gallon.

Given that you know the price and quantity of gallons sold so far, and that Cal's cost is $2.661 per gallon, complete the table to the right:

5. Once you calculate total profit, what is the profit maximizing price?

6. Next calculate marginal revenue, knowing that it is the difference between the revenue at the price shown and the revenue at 1/400 of a cent less. Calculate 1/400 of a cent as well as the new price.

Complete the table to the right:

7. Does MC = MR at the maximum profit point?

Attachment:- Excel Workbook.rar

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M93128322
  • Price:- $30

Priced at Now at $30, Verified Solution

Have any Question? 


Related Questions in Financial Accounting

Assessment -part a -saturn petcare australia and new

Assessment - Part A - Saturn Petcare Australia and New Zealand is Australia's largest manufacturer of pet care products. Saturn have been part of the Australian and New Zealand pet care landscape since opening their firs ...

Assessment task 1question no 1assessment taskbilby cos

Assessment Task 1 Question no. 1 Assessment Task: Bilby Co's income statement for the year ended 31 December 2015 and statements of financial position at 31 December 2014 and 31 December 2015 were as follows: Bilby co's ...

Assignment -part a -background saturn petcare australia and

Assignment - Part A - Background: Saturn Petcare Australia and New Zealand is Australia's largest manufacturer of pet care products. Saturn have been part of the Australian and New Zealand pet care landscape since openin ...

Comprehensive problem - lou barlow a divisional manager for

Comprehensive Problem - Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of two new products for a five-year period. His annual pay raises are determined by his division's ...

At the start of 2013 shasta corporation has 15000

At the start of 2013, Shasta Corporation has 15,000 outstanding shares of preferred stock, each with a $60 par value and a cumulative 7% annual dividend. The company also has 28,000 shares of common stock outstanding wit ...

Assessment 1develop complex spreadsheetsthis is an

Assessment 1 Develop Complex Spreadsheets This is an assessment that may be worked on in study time and as homework. Assessment presentation should be completed in a manner that is appropriate to professional business re ...

Oil services corp reports the following eps data in its

Oil Services Corp. reports the following EPS data in its 2017 annual report (in million except per share data). Net income $1,827 Earnings per share: Basic $1.56 Diluted $1.54 Weighted average shares outstanding: Basic 1 ...

A review of the ledger of oriole company at december 31

A review of the ledger of Oriole Company at December 31, 2017, produces these data pertaining to the preparation of annual adjusting entries. 1. Prepaid Insurance $19,404. The company has separate insurance policies on i ...

Assignment - problem questionsthis assessment task consists

Assignment - Problem questions This assessment task consists of five (5) questions. All workings, when appropriate, must be shown to substantiate your answers. Question 1 - Financial statement disclosures You are the fin ...

Sweet treats common stock is currently priced at 3672 a

Sweet treats common stock is currently priced at $36.72 a share. The company just paid $2.18 per share as its annual dividend. The dividends have been increasing by 2,2 percent annually and are expected to continue doing ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As