1. Suppose distillation is available for an extra 100 hours per week. How much w
ID: 379770 • Letter: 1
Question
1. Suppose distillation is available for an extra 100 hours per week. How much would that be worth to the firm? Suppose conversion is available for an extra 100 hours per week. How much would that be worth to the firm?
2. Suppose the price of heavy crude decreases by $1/barrel (with light remaining the same). How much would that affect Petro Refinery’s profits?
Capacity in each department is calculated by measuring the equipment hours needed per refining each 1,000 barrels of crude. The firm's output possibilities are based on equipment hours available, in combination with equipment hours required, in each step of the refining process. As an example, Petro Refinery LLC's Petro Refinery LLC Linear Programming Exercise 1-42X-XXX weekly refining capacity is sufficient to process either 800,000 barrels of light crude or 800,000 barrels of heavy crude if devoted fully to either crude type. However, Petro Refinery LLC usually processes both light and heavy crude in any given week. For example, if 500,000 barrels of light crude are processed, there would still be sufficient availability of refining equipment for also processing 360,000 barrels of heavy crude. Data on the equipment hours required for refining light or heavy crude at each step of the way can be found in Table B The Petro Refinery production schedule for the prior several months resulted in a weekly processing of 700,000 barrels of light crude and 120,000 barrels of heavy crude. The weekly output was 15,800,000 gallons of gasoline, 8,800,000 gallons of diesel, and 12,300,000 gallons of other petroleum products. At these levels of production, the blending facilities were operating at full capacity. However, the distillation and conversion facilities were not maximizing capacity potential. Table A Crude input and output Sweet light crude Input Heavy crude Price S80/barrel $75/barrel Output per barrel (in gallons) Gasoline Diesel Other Get fuel, heavy fuel oil, LPG gases, etc 20 10 15 15 15 15 Table B Refining equipment demand per 1,000 barrels Equipment hours available per week Input Sweet light crude Heavy crude Distillation 2 hours 2 hours 3 hours 2 hours 3 hours 2.5 hours 3,000 2,400 2,400 Blending Table C Fixed overhead $2,000,000/week 3,000,000/week 2,000,000/week Overhead and labor costs Variable overhead $2/barrel 3/barrel 2.5/barrel Labor S0.5/barrel 1/barrel 1/barrel Distillation BlendingExplanation / Answer
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