A heating oil retailer has been buying heating oil at $2.82 per gallon and keeps a 30-day supply on hand. He sells 5,000 gallons per day and has been charging his customers $3.25 per gallon. The retailer has nonincremental fixed costs of $800 per day. Yesterday the wholesale price of heating oil decreased from $2.82 per gallon to $2.68 cents per gallon.
(a) What is the per-gallon cost that is relevant for pricing decisions concerning heating oil that the retailer will sell today? Explain your answer.
(b) If the heating oil retailer is planning to respond to the wholesale price decrease by lowering his $3.25-per-gallon retail price, should he wait 30 days to make that price change? Explain your answer.