Cal Overhaut operates an ExxonMobil gas station tranchise in Fitzhugh, MD. The price of gasoine is volatile and varies greatly from day to day. The price per gallon varies based on the seasonal blend of gasoline, which is determined by clean-air requirements, and Cal's pricing choices are limited to the profit margin for his price. Daily prices can be found at https:/www.eia.govfdnav/pethistEER EPMRU PF4 Y35NY DPGD.htm. Cal recently raised the price of gas by I cent per gallon from $2.189 to $2.199, and his profit declined. Cal would like you to measure his business gains or losses based on the price of S2.189 per gallon. Cal competes with a local brand on the opposite corner that typically sells gas for 2 to 3 cents per gallon less than his station. They are currently selling gasoline for $2.159 per gallon. Recently, regular gasoline for delivery in New York harbor sold for $1.408 per gallon. We will use this price in our exercise. Cal tells you that his fixed costs are $250 per day To the right are additional charges that Cal must pay on each gallon of gasoline. Answer the seven questions below. You are required to use Excel for all calculations. Base price of unleaded regular delivered in New York harbor lanuary 4, 2019) $1.408 dded cost to Cal Maryland state gasoline tax (Effective July 1, 2018) Federal gasoline tax Distribution & Delivery Advertising and Marketing to Exxon Mobil Additives 0.353 $0.184 0.042 $0.042 Total additions 0.611 Total cost per gallon 1. Cal sold 4,000 gallons per day at a price of $2.189 per gallon. He raised the price 1 cent to S2.199 per gallon, and revenues and profits dropped. His station sold 3,600 gallons per day at $2.199 per gallon. Fixed costs are S250 per day What is the price elasticity of demand? Can the elasticity be characterized as elastic, 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.) Answer queo 1 belaw Quantity Price Averae Average %change %change Elasticity of Demand Elasticity: By how much did revenues increase or decrease as a result of the change in price? By how much did profits increase or declinc? Variable Revenue (pricr xCost per Gallon p Gallons Cost (cast Fixed cost per Total Cost (Fixed Profit (reveue per Price day galleons) day +Variable all costs) volume) 2.189 2.049 $ 8,196.00D 25D.000 8,446.00D 4DDD 3600 8,756.000 S 310.000 2. After seeing your analysis of his decline in profit, Cal decides to lower the price of gas to S2.179 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 at $2.179. Fixed costs are $250 per day What is the price elasticity of demand? Can the elasticity be characterized as elastic, inelastic, or neither? By how much did revenues increase or decrease asa result of the change in price? By how much did profits increase or decline? (Profits are revenue minus all costs.) Answer question 2 below Quantity Price Averag vras %change %change Elasticity of Demand Elasticity: By how much did revenues increase or decrease as a result of the change in price? By how much did profits increase or decline? Gallons sold per day Revenue (price x gallons) Varlable Costcost per unit x | Fixed cost per day Total Cost (Fixed Profit (revenue Price Cost per Gallon + Varlablel all costs) 3. After seeing the resul (from question 2) Cal decides to lower his price once again to S2.169 per gallon. Once again, volume 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 it price. He wants to know wh at his price should be What is the price elasticity of denand? Can the elasticity be characterized as elastic, 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.) Answer question 3 beow Quanty Price AverazeAveraee Elasticty By how much did revenues increase or decrease as a result of the change in price? By how much did profits increase ar decline? Variable Cost (cot Fixed cost per Total Cost (Fixed Profit (revenue per unit x volume Gallons Revenue [pricex allons) sold per Price Cost per Gallon day + Variable| all costs) day I 4. Cal's son is studying in the MBA program at LUMUC. He tells his father that profit maximization occurs when marginal cost (MC)mrginal revenue (MR). Cal asks you for a definition of each. You tell Cal that his marginal cost is the same as his variable cost, or $2.049 per gallon. Technically. marginal cost is the added cost from selling one more gallon. Marginal revenue is more diflicult. Marginal revenue is the increase in total revenue from selling one more unt or gallon. You decide that if a price change of 1 cent causes demand to change by 400 gallons, then a price change of 1 cent divided by 400 gallons is the price change to sell one more gallou. To calculate MR calculate the revenue at one price level and then calculate the revenue at the price minus $0.01 400. Volume increases by 1 gallon Cal says that is all fine, but first asks you to show him his maximum protit. He asks you for a chart with profits at many volume levels, assuming that he continues to sell 400 more gallons for each 1 cent decrease in price Also, he wants to know how much can he lower price before his gasoline business loses money. Given that you know the price aud quantity of gallons sold so far, and that Cal's cost per gallon is S2.049 per gallon and his fixcd cost is $250 per day, complcte the table to the right. Gallons sold per da Revenue (price x gallons} Variable Cost (cost Fixed cost per per unit x Cost Fixed + Variable) revenu all costs) Price Cost per Galon day 3,600 4,000 $2.199 52.189 2.179 149 2.139 2.099 $2.089 2.069 2.05 5.Once you calculate total profit, what is the profit maximizing price? 6. Next calculate marginal revenue, knowing that it is he diference between ne revenue a the price shown and he revenue at 4Hoa entes. Ca ate 40y a cent as well as the new price Calculate the marginal cost of selling one more gallon at each price. Prove that MC Prove to Cal that MR = MC at the maximum profit Complete the table to the right %2.049 sald per Tatal CastMarg nal Cast galons) galon 3,60 S2.10000 ,001 2.049 ,B00 4,401 4,800 7. Does MC MR at the maximum profit point? Cal Overhaut operates an ExxonMobil gas station tranchise in Fitzhugh, MD. The price of gasoine is volatile and varies greatly from day to day. The price per gallon varies based on the seasonal blend of gasoline, which is determined by clean-air requirements, and Cal's pricing choices are limited to the profit margin for his price. Daily prices can be found at https:/www.eia.govfdnav/pethistEER EPMRU PF4 Y35NY DPGD.htm. Cal recently raised the price of gas by I cent per gallon from $2.189 to $2.199, and his profit declined. Cal would like you to measure his business gains or losses based on the price of S2.189 per gallon. Cal competes with a local brand on the opposite corner that typically sells gas for 2 to 3 cents per gallon less than his station. They are currently selling gasoline for $2.159 per gallon. Recently, regular gasoline for delivery in New York harbor sold for $1.408 per gallon. We will use this price in our exercise. Cal tells you that his fixed costs are $250 per day To the right are additional charges that Cal must pay on each gallon of gasoline. Answer the seven questions below. You are required to use Excel for all calculations. Base price of unleaded regular delivered in New York harbor lanuary 4, 2019) $1.408 dded cost to Cal Maryland state gasoline tax (Effective July 1, 2018) Federal gasoline tax Distribution & Delivery Advertising and Marketing to Exxon Mobil Additives 0.353 $0.184 0.042 $0.042 Total additions 0.611 Total cost per gallon 1. Cal sold 4,000 gallons per day at a price of $2.189 per gallon. He raised the price 1 cent to S2.199 per gallon, and revenues and profits dropped. His station sold 3,600 gallons per day at $2.199 per gallon. Fixed costs are S250 per day What is the price elasticity of demand? Can the elasticity be characterized as elastic, 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.) Answer queo 1 belaw Quantity Price Averae Average %change %change Elasticity of Demand Elasticity: By how much did revenues increase or decrease as a result of the change in price? By how much did profits increase or declinc? Variable Revenue (pricr xCost per Gallon p Gallons Cost (cast Fixed cost per Total Cost (Fixed Profit (reveue per Price day galleons) day +Variable all costs) volume) 2.189 2.049 $ 8,196.00D 25D.000 8,446.00D 4DDD 3600 8,756.000 S 310.000 2. After seeing your analysis of his decline in profit, Cal decides to lower the price of gas to S2.179 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 at $2.179. Fixed costs are $250 per day What is the price elasticity of demand? Can the elasticity be characterized as elastic, inelastic, or neither? By how much did revenues increase or decrease asa result of the change in price? By how much did profits increase or decline? (Profits are revenue minus all costs.) Answer question 2 below Quantity Price Averag vras %change %change Elasticity of Demand Elasticity: By how much did revenues increase or decrease as a result of the change in price? By how much did profits increase or decline? Gallons sold per day Revenue (price x gallons) Varlable Costcost per unit x | Fixed cost per day Total Cost (Fixed Profit (revenue Price Cost per Gallon + Varlablel all costs) 3. After seeing the resul (from question 2) Cal decides to lower his price once again to S2.169 per gallon. Once again, volume 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 it price. He wants to know wh at his price should be What is the price elasticity of denand? Can the elasticity be characterized as elastic, 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.) Answer question 3 beow Quanty Price AverazeAveraee Elasticty By how much did revenues increase or decrease as a result of the change in price? By how much did profits increase ar decline? Variable Cost (cot Fixed cost per Total Cost (Fixed Profit (revenue per unit x volume Gallons Revenue [pricex allons) sold per Price Cost per Gallon day + Variable| all costs) day I 4. Cal's son is studying in the MBA program at LUMUC. He tells his father that profit maximization occurs when marginal cost (MC)mrginal revenue (MR). Cal asks you for a definition of each. You tell Cal that his marginal cost is the same as his variable cost, or $2.049 per gallon. Technically. marginal cost is the added cost from selling one more gallon. Marginal revenue is more diflicult. Marginal revenue is the increase in total revenue from selling one more unt or gallon. You decide that if a price change of 1 cent causes demand to change by 400 gallons, then a price change of 1 cent divided by 400 gallons is the price change to sell one more gallou. To calculate MR calculate the revenue at one price level and then calculate the revenue at the price minus $0.01 400. Volume increases by 1 gallon Cal says that is all fine, but first asks you to show him his maximum protit. He asks you for a chart with profits at many volume levels, assuming that he continues to sell 400 more gallons for each 1 cent decrease in price Also, he wants to know how much can he lower price before his gasoline business loses money. Given that you know the price aud quantity of gallons sold so far, and that Cal's cost per gallon is S2.049 per gallon and his fixcd cost is $250 per day, complcte the table to the right. Gallons sold per da Revenue (price x gallons} Variable Cost (cost Fixed cost per per unit x Cost Fixed + Variable) revenu all costs) Price Cost per Galon day 3,600 4,000 $2.199 52.189 2.179 149 2.139 2.099 $2.089 2.069 2.05 5.Once you calculate total profit, what is the profit maximizing price? 6. Next calculate marginal revenue, knowing that it is he diference between ne revenue a the price shown and he revenue at 4Hoa entes. Ca ate 40y a cent as well as the new price Calculate the marginal cost of selling one more gallon at each price. Prove that MC Prove to Cal that MR = MC at the maximum profit Complete the table to the right %2.049 sald per Tatal CastMarg nal Cast galons) galon 3,60 S2.10000 ,001 2.049 ,B00 4,401 4,800 7. Does MC MR at the maximum profit point