Question
For this week's discussion I choose Valero Energy since San Antonio, Texas is my home, and their headquarters are located there. Valero Energy is part
For this week's discussion I choose Valero Energy since San Antonio, Texas is my home, and their headquarters are located there. Valero Energy is part of the oil/gas refining and marketing industry. Founded in 1980, Valero energy is one of the largest manufacturers of transportation fuels generating billions in revenue annually.
Implicit costs:These costs would include all the resources the company already has in its possession. The total estimated value for all these resources would give us the implicit cost for Valero Energy.
Explicit costs:These costs would include buying raw materials (crude oil), paying employees, equipment maintenance and other variable and fixed costs where an actual payment must be made.
Variable Costs:These costs are associated with variable inputs and include things like the cost of raw materials, emergency expenses, paying temporary workers and any other costs that may change from month to month.
Fixed Costs:These costs are associated with fixed inputs and include things like paying the companies permanent employees, leasing land and buildings, paying for utilities, taxes, and anything else that would stay at a constant price from month to month.
Economical viability:For a business to be viable, it needs to generate more revenue than the cost to run the business. Even thou Valero energy took a hit during 2020 (shown in the table below) due to the fall in demand for fuel, the long term ahead is not looking too bad for the company. As the economy starts to return back to normal after the pandemic and fuel demand starts to rise, the company's revenue will start to return to the pre 2020 numbers. There is a bit of uncertainty for the gas and oil industry as we slowly move towards more renewable sources of energy and as electric vehicles become more popular.
Question:
How does the dynamic of implicit costs apply to the forgone production costs associated with the physical and human capital costs of production of the transportation fuels?
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