Consider production ratios of 2:1:1, 3:2:1, and 5:3:2 for oil, gasoline, and heating oil. Assume that other costs are the same per gallon of processed oil.
a. Which ratio maximizes the per-gallon profit if oil costs $80/barrel, gasoline is $2/gallon, and heating oil is $1.80/gallon?
b. Suppose gasoline costs $1.80/gallon and heating oil $2.10/gallon. Which ratio maximizes profit?
c. Which spread would you expect to be most profitable during the summer? Which during the winter? Discuss.