To complete this project step, address the following:

1. Based on the information provided in the tables on the left, examine the supply a
the client to know how much oil to produce. The graph shows how prices are set in
Demand for Crudeare Oilpriced on commodity exchanges. Prices can change in less than a second. The in
Daily US have
demand for the graph, identify the price and quantity at which equilibrium exist
examined
Price per barrel crude oil (in millions
of oil of
to produce for profit maximization.
barrels)
2. The global demand for oil changes with the changes in global economies. As econ
$40.00 past several years, the global demand for oil has increased (https://www.iea.org/oi
104
$50.00 observe this change graphically. Looking at the graph in question 2, what is the new
103
$60.00 102
3. What are the potential supply and demand risks in the global oil market? Suppor
$70.00 Answer in the space below. Be as descriptive as possible, and credit any sources yo
101
$80.00 100
$90.00 99
$100.00 98

Supply of Crude Oil

Daily US supply of crude
oil (in millions of barrels)
Price per barrel

$40.00 98
$50.00 100
$60.00 102
$70.00 104
$80.00 106
Show your work below.
$90.00 108
$100.00 110

Daily quantity of barrels Daily quantity of $120.00

supplied (in millions) barrels
Price per barrel demanded (in
millions) $100.00

$50.00 104 110

$60.00 105 109 $80.00
$70.00 106 108
$80.00 107 107
$90.00 108 106 $60.00
$100.00 109 105
$110.00 110 104
$40.00
Question 1: $80.00

$20.00

$0.00
103 104 10
 Daily quantity of barrels Daily quantity of Daily quantity of $120.00
supplied (in millions) barrels barrels
Price per barrel demanded (in demanded (in
millions) millions) $100.00

$50.00 104 110 112 $80.00

$60.00 105 109 111
$70.00 106 108 110
$60.00
$80.00 107 107 109
$90.00 108 106 108
$100.00 109 105 107 $40.00
$110.00 110 104 106
$20.00
Question 2: $90.00

$0.00
103 104 105

Question 3: What are the potential supply and demand risks in the global oil market? Support your statements with research
references.
Answer in the space below. Be as descriptive as possible, and credit any sources you use.
A potential supply and demand risk in the global oil market is a shifts in the supply curve. Things such as natural d
competition or changes in demand will effect the supply schedule. Due to the extract and processing of oil, natur
can cause an influx in the oil price. Also, certain issues such as competing brands in an oligarcy economy, global w
ride share options and types of cars can increase/decrease the demand causing an increase/decrease in the supp
The price will naturally vary day today from a production standpoint.
 the left, examine the supply and demand graph in the space below. This information is helpful for
h shows how prices are set in economic theory. In the "real world," oil and its derivative products
e in less than a second. The information provided here is approximately four months old. After you
tity at which equilibrium exists. This information is essential for the client to determine the quantity

in global economies. As economic activity increases, the global demand for oil increases. For the
ased (https://www.iea.org/oilmarketreport/omrpublic/). As global demand changes, we can
n question 2, what is the new point of equilibrium?

he global oil market? Support your statements with research and references.
le, and credit any sources you use.

$120.00

$100.00

$80.00

$60.00

$40.00

$20.00

$0.00
103 104 105 106 107 108 109 110 111
 $120.00

$100.00

$80.00

$60.00

$40.00

$20.00

$0.00
103 104 105 106 107 108 109 110 111 112 113

ur statements with research and

use.
urve. Things such as natural disasters,
t and processing of oil, natural disasters
n oligarcy economy, global warming,
ncrease/decrease in the supply amount.
Q4.
Cal Overhaut operates an ExxonMobil gas station franchise in Fitzhugh, MD. The price of gasoline is
volatile and varies significantly from day to day. The price per gallon varies based on the seasonal blend of
gasoline, which is determined by clean-air requirements. Cal's pricing options are based on the desired
profit margin.

Conventional Gasoline Regular Spot Prices can be found at

https://www.eia.gov/dnav/pet/hist/EER_EPMRU_PF4_Y35NY_DPGD.htm.
Cal recently raised the price of regular gas by 1 cent per gallon from $2.749 to $2.759, and his profit
declined. Cal would like you to explain why that happened.

Cal competes with another gas station across the street that typically sells regular gas for 2 to 3 cents per
gallon less than his station. They are currently selling gasoline for $2.729 per gallon. Recently, regular
gasoline for delivery in New York harbor sold for $2.008 per gallon.

Cal tells you that his gas station has fixed operating costs of about $250 per day.

To the right are the components that determine the cost of a gallon of regular gasoline to Cal's business.

Answer the seven questions below. You are required to use Excel for all calculations.

1. Last week, Cal sold an average of 4,000 gallons per day at an average price of $2.749 per gallon. This
week, he raised the average price by 1 cent to $2.759 per gallon, and both revenues and profits dropped.
His station is now selling an average of 3,600 gallons per day. Fixed costs of operating the gas station are
$250 per day.

What is the price elasticity of demand?

Can the demand be characterized as price elastic, price inelastic, or neither?
By how much did revenues increase or decrease as a result of the change in price?
By how much did profits increase or decline? (Profits are revenue minus all costs.)

2. After seeing your analysis, Cal decides to lower the price of gas to $2.739 per gallon. After this change,
the volume sold increased to 4,400 gallons per day. He asks you to measure his business gains or losses as
a result of this price change. Fixed costs are $250 per day.

What is the price elasticity of demand?

Can the demand be characterized as price elastic, price inelastic, or neither?
By how much did revenues increase or decrease as a result of the change in price?
By how much did profits increase or decline? (Profits are revenue minus all costs.)
2. After seeing your analysis, Cal decides to lower the price of gas to $2.739 per gallon. After this change,
the volume sold increased to 4,400 gallons per day. He asks you to measure his business gains or losses as
a result of this price change. Fixed costs are $250 per day.

What is the price elasticity of demand?

Can the demand be characterized as price elastic, price inelastic, or neither?
By how much did revenues increase or decrease as a result of the change in price?
By how much did profits increase or decline? (Profits are revenue minus all costs.)

3. After seeing the result (from question 2), Cal decided to lower his price once again to $2.729 per
gallon. Once again, volume sold increases and settles at 4,800 gallons per day. He is worried that any
further price cut will cause the discount station across the street to also lower its price.

What is the price elasticity of demand?

Can the demand be characterized as price elastic, price inelastic, or neither?
By how much did revenues increase or decrease as a result of the change in price?
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 the marginal cost (MC) = marginal revenue (MR). Cal understands that his marginal cost is the
same as his variable cost or $2.649 per gallon. Technically, marginal cost is the added cost from selling
one more gallon.

Cal asks you for a chart to show how profits vary with sales volume, assuming that he sells an additional
400 gallons for each 1 cent decrease in price. Also, he wants to know how much he can lower his price
without losing money.

Given that you know the price and quantity of gallons sold so far, and that Cal's cost per gallon is $2.649
per gallon and his fixed cost is $250 per day, complete the table to the right.
Given that you know the price and quantity of gallons sold so far, and that Cal's cost per gallon is $2.649
per gallon and his fixed cost is $250 per day, 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.

Calculate the marginal cost of selling one more gallon at each price. Prove that MC = $2.649

Prove to Cal that MR = MC at the maximum profit.

Complete the table to the right.

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

Select One
Price Elastic
Price Inelastic
Unit Price Elastic
 Profit Maximization
of gasoline is
he seasonal blend of Base price of unleaded regular delivered in New York harbor (April 8, 2019)
ed on the desired
Added cost to Cal:
Maryland state gasoline tax (Effective July 1, 2018)
Federal gasoline tax
Distribution & Delivery
and his profit
Advertising and Marketing to ExxonMobil
Additives
for 2 to 3 cents per Total additions
ecently, regular
Total cost per gallon

e to Cal's business.

Answer question 1 below.

9 per gallon. This Quantity Price
nd profits dropped.
the gas station are 4000 2.749
3600 2.759
Average Average
3800 2.754
% change % change Elasticity of Demand
-10.53% 3.63% -2.899

Elasticity: Price Elastic

By how much did revenues increase or decrease as a result of the change in price?
By how much did profits increase or decline? Decrease $4.00

Gallons Variable Cost

sold per Price Revenue (price x gallons) Cost per Gallon (cost per unit
day x volume)

4000 $ 2.749 $ 10,996.00 $ 2.649 $ 10,596.00

3600 $ 2.759 $ 9,932.40 $ 2.649 $ 9,536.40

Answer question 2 below.

. After this change, Quantity Price
ess gains or losses as 3600 $2.759
4400 $2.739
Average Average
 . After this change,
ess gains or losses as

4000 $2.749
% change % change Elasticity of Demand
20% -7.27% -2.751

Elasticity: Price Elastic

By how much did revenues increase or decrease as a result of the change in price?
By how much did profits increase or decline? Zero

Gallons Variable Cost

sold per Price Revenue (price x gallons) Cost per Gallon (cost per unit
day x volume)

3600 $ 2.759 $ 9,932.40 $ 2.649 $ 9,536.40

4400 $2.739 $ 12,051.60 $ 2.649 $ 11,655.60

Answer question 3 below.

to $2.729 per
worried that any Quantity Price
e. 4400 2.739
4800 2.729
Average Average
4600 2.734
% change % change Elasticity of Demand
8.696% -3.657% -2.378

Elasticity: Price Elastic

By how much did revenues increase or decrease as a result of the change in price?
By how much did profits increase or decline? Decline $12

Gallons Variable Cost

sold per Price Revenue (price x gallons) Cost per Gallon (cost per unit
day x volume)

4400 $2.739 $ 12,051.60 $ 2.649 $ 11,655.60

4800 $2.729 $ 13,099.20 $ 2.649 $ 12,715.20

aximization occurs Profit Maximization

ginal cost is the
cost from selling Gallons Variable Cost
sold per Price Revenue (price x gallons) Cost per Gallon (cost per unit
day x volume)
e sells an additional
an lower his price 3600 $ 2.759 $ 9,932.40 $ 2.649 $ 9,536.40
4000 $ 2.749 $ 10,996.00 $ 2.649 $ 10,596.00
per gallon is $2.649 4400 $ 2.739 $ 12,051.60 $ 2.649 $ 11,655.60
4800 $ 2.729 $ 13,099.20 $ 2.649 $ 12,715.20
5200 $ 2.719 $ 14,138.80 $ 2.649 $ 13,774.80
5600 $ 2.709 $ 15,170.40 $ 2.649 $ 14,834.40
per gallon is $2.649

6000 $ 2.699 $ 16,194.00 $ 2.649 $ 15,894.00

6400 $ 2.689 $ 17,209.60 $ 2.649 $ 16,953.60
6800 $ 2.679 $ 18,217.20 $ 2.649 $ 18,013.20
7200 $ 2.669 $ 19,216.80 $ 2.649 $ 19,072.80
7600 $ 2.659 $ 20,208.40 $ 2.649 $ 20,132.40
8000 $ 2.649 $ 21,192.00 $ 2.649 $ 21,192.00
8400 $ 2.639 $ 22,167.60 $ 2.649 $ 22,251.60
8800 $ 2.629 $ 23,135.20 $ 2.649 $ 23,311.20
9200 $ 2.619 $ 24,094.80 $ 2.649 $ 24,370.80

Answer question 5 below.

$2.749

enue at the price Marginal Revenue M

he new price. Gallons Cost per
sold per Price Revenue (price x gallons) Marginal revenue
$2.649 gallon
day
3,600 $2.759000 $9,932.40 $2.649
3,601 $2.758975 $9,935.06 $2.6689 $2.649
4,000 $2.749000
4,001
4,400 $2.739000
4,401
4,800 $2.729000
4,801
5,200 $2.719000
5,201
 $2.008

$0.353
$0.184
$0.042
$0.042
$0.020
$0.641

$2.649

Decrease $1,063.60

Daily Profit
Fixed cost per day Total Cost (Fixed (revenue - all
+ Variable) costs)

$ 250.00 $ 10,846.00 $ 150.00

$ 250.00 $ 9,786.40 $ 146.00
 Increase $2,119.20

Daily Profit
Fixed cost per day Total Cost (Fixed (revenue - all
+ Variable) costs)

$ 250.00 $ 9,786.40 $ 146.00

$ 250.00 $ 11,905.60 $ 146.00

Increase $1,047.60

Daily Profit
Fixed cost per day Total Cost (Fixed (revenue - all
+ Variable) costs)

$ 250.00 $ 11,905.60 $ 146.00

$ 250.00 $ 12,965.20 $ 134.00

mization

Daily Profit
Fixed cost per day Total Cost (Fixed (revenue - all
+ Variable) costs)

$ 250.00 $ 9,786.40 $ 146.00

$ 250.00 $ 10,846.00 $ 150.00
$ 250.00 $ 11,905.60 $ 146.00
$ 250.00 $ 12,965.20 $ 134.00
$ 250.00 $ 14,024.80 $ 114.00
$ 250.00 $ 15,084.40 $ 86.00
$ 250.00 $ 16,144.00 $ 50.00
$ 250.00 $ 17,203.60 $ 6.00
$ 250.00 $ 18,263.20 $ (46.00)
$ 250.00 $ 19,322.80 $ (106.00)
$ 250.00 $ 20,382.40 $ (174.00)
$ 250.00 $ 21,442.00 $ (250.00)
$ 250.00 $ 22,501.60 $ (334.00)
$ 250.00 $ 23,561.20 $ (426.00)
$ 250.00 $ 24,620.80 $ (526.00)

Marginal Cost

Variable Cost Fixed Cost Total Cost Marginal Cost

$9,536.40 $250.00 $9,786.40