An oil and gas industry produces firm produces oil. The profit function for the firm is give
Question:
An oil and gas industry produces firm produces oil. The profit function for the firm is give as: profit = ($100-variable cost)*gallons oil sold-fixed cost. The current production rate is 5 million barrels per year. The firm can expand the production by conducting further stepwise exploration, adding I million or 2 million barrels per year with the following cost implications:
Scenarios | Capacity (barrel/year) | Fixed cost | Variable cost |
Current | 5 million | $ 10 million | $30 /barrel |
Add 1 million | 6 million | $14 million | $26 /barrel |
Add 2 million | 7 million | $18 million | $24 /barrel |
Annual demand of oil is probabilistic with following distribution
Oil demand | Probability |
3 million | 0.1 |
4 million | 0.2 |
5 million | 0.3 |
6 million | 0.3 |
7 million | 0.4 |
8 million | 0.4 |
9 million | 0.2 |
10 million | 0.1 |
Develop a spreadsheet profit model for each scenario, and average profit for each scenario (using same random number).
Statistical Reasoning for Everyday Life
ISBN: 978-0321817624
4th edition
Authors: Jeff Bennett, Bill Briggs, Mario F. Triola