My impression of the gasoline industry is that there is 1) a wholesale price pai

Question

My impression of the gasoline industry is that there is 1) a wholesale price paid to refiners by gas stations who receive large shipments of gasoline in tanker trucks on (roughly) a daily basis, and 2) a retail price for customers set by individual gas stations, which can change multiple times per day. Some people get upset at mid-day changes in the retail price, arguing that all gasoline purchased from a tanker truck early in the morning at a particular wholesale price should be sold at the same retail price throughout the day (i.e., there should be a constant mark-up over the wholesale price). What defense could be given to support the phenomenon of changing retail prices throughout the day, even if the earlier wholesale price has not changed?

Select one:

a. The retail price must exclude the transaction costs of the tanker trucks' transportation expenses.

b. The current retail price is considered a sunk cost and should be ignored (even if its price fluctuates); the wholesale price is an avoidable cost that the gas station can resell after a customer has purchased the gasoline.

c. The wholesale price is considered a variable cost, but the retail price is considered a fixed cost and should not fluctuate.

d. The payment of the wholesale price at an earlier time is a sunk cost and does not have any bearing on the current market (retail) price.

Explanation / Answer

Answer: The payment of the wholesale price at an earlier time is a sunk cost and does not have any bearing on the current market price.

Explanation: This is because once the petroleum is bought in wholesale it is considered a sunk cost as there are costs to refine the petroleum, transport the material, excise taxes etc which determine the prices. Hence, the wholesale price cannot be the price determinant.

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