Profit Maximizing Quantity and Price Presentation
Profit Maximizing Quantity and Price Presentation
Oil Company X is a large oil refinery which has been expanding and taking on new investment projects. Recently, they have considered building a pipeline that stretches across the United States, from Canada to New Orleans. As an alternate investment, they are considering increasing production at existing facilities.
In order to compare these investment opportunities, the head of the Cost Analysis Department has tasked you with finding the profit maximizing quantity and price if production continues at existing facilities. You will then present this to the head of the department in a meeting, along with supporting documentation such as cost curves, data tables, and equations.
PRICE $3.00 $2.87 $2.75 $2.62 $2.49 $2.37 $2.24 $2.11 $1.98 $1.86 $1.73 QUANTITY (in millions) MARGINAL REVENUE 0 1 2 3 4 5 6 7 8 9 10 $3.00 $2.75 $2.49 $2.24 $1.98 $1.73 $1.48 $1.22 $0.97 $0.71 $0.46 TOTAL COST (in millions) $0.45 $1.09 $2.34 $3.75 $5.32 $7.05 $8.94 $10.99 $13.20 $15.57 $18.10 AVERAGE TOTAL COST AVERAGE FIXED COST AVERAGE VARIABLE COST MARGINAL COST
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