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Suppose that a manager of an oil refinery has 8 million barrels of crude oil A and 5 million barrels of crude oil B allocated
Suppose that a manager of an oil refinery has 8 million barrels of crude oil A and 5 million barrels of crude oil B allocated for production during the coming month. These resources can be used to make either gasoline, which sells for $38 per barrel, or home heating oil, which sells for $33 per barrel. There are three production processes with the following characteristics: For example, with the first process, 3 barrels of crude A and 5 barrels of crude B are used to produce 4 barrels of gasoline and 3 barrels of heating oil. The costs in this table refer to variable and allocated overhead costs, and there are no separate cost items for the cost of the crudes. Referring to the refinery management exercise from Tutorial 2, suppose that the selling price of heating oil is sure to remain fixed at $33 per barrel over the next month, but the selling price of gasoline may rise above $38 per barrel. Argue that the optimal solution remains the same regardless of how high the gasoline price is (as long as it is above $38 per barrel)
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