Demand Elasticity and Cost Analysis of Building a Pipeline

Anonymous
timer Asked: Dec 11th, 2018
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Question description

Note: All sources must have a URL

Competency

Elasticity, consumer choice, utility, productivity, and nature of costs.

Course Scenario

Oil Company X is a large oil refinery which has been expanding and taking on new investment projects. Recently, they have considered building a pipeline that stretches across the United States, from Canada to New Orleans.

You are a member of the Cost Department. At a recent meeting of the board of directors, it was estimated that the cost of building the pipeline would be two million dollars in total for the production of a 30,000-mile stretch, $5,000 of which is a fixed cost in taxes. They also want you to determine if the currently available alternative energy source is a strong substitute good for oil, which may interfere with expected profits from this venture.

Instructions

As a cost analyst at your firm, you are asked to evaluate the marginal cost of producing the pipeline per 1,000-mile stretch as well as the average total cost of producing the pipeline per 1,000 miles. Submit a 2-page report detailing the cost. Include calculations in your Word document.

You will also include a table showing the final figures for the following costs:

  1. Total Fixed Cost
  2. Total Variable Cost
  3. Average Variable Cost
  4. Average Fixed Cost
  5. Marginal Cost

Please use this included Excel Cost Spreadsheet to calculate your costs.

Be sure to also include a calculation of the cross-price elasticity of the alternative energy source and oil. Assume the current price of oil is $50/gallon. If the price increases to $55/gallon of crude oil, the quantity demanded of the alternative energy source increases by 20%.

Is this a complementary good, a substitute good, or a non-related good? If there is a relationship, indicate whether the relationship is weak or strong. Justify your answer with an explanation.

Format your proposal to include a title page, introduction, conclusion, and references. Include all relevant graphs, equations, and calculations. Show your work on calculations to ensure you receive partial credit for incorrect answers. No credit will be given if your work is not shown. Remember to cite your sources using correct APA format, and also use correct grammar, spelling, and formatting.

Quantity (miles of pipeline) 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 12,000 13,000 14,000 15,000 16,000 17,000 18,000 19,000 20,000 21,000 22,000 23,000 24,000 25,000 26,000 27,000 28,000 29,000 30,000 Total Cost Total Fixed Cost Total Variable Cost $ 5,000 $ 5,000 $ 11,573 $ 18,208 $ 29,267 $ 44,750 $ 64,657 $ 88,987 $ 117,740 $ 150,918 $ 188,518 $ 230,543 $ 276,991 $ 327,863 $ 383,159 $ 442,878 $ 507,021 $ 575,587 $ 648,577 $ 725,991 $ 807,828 $ 894,089 $ 984,774 $ 1,079,882 $ 1,179,414 $ 1,283,370 $ 1,391,749 $ 1,504,552 $ 1,621,778 $ 1,743,429 $ 1,869,502 $ 2,000,000 Average Fixed Cost Average Variable Cost Marginal Cost
Grading Rubric F F C B A 0 1 2 3 4 Not Submitted No Pass Competence Proficiency Mastery Introduction and/or conclusion did not summarize the various costs. Introduction and conclusion summarized the various costs. Introduction and conclusion summarized the various costs, using clear supporting evidence. Introduction and conclusion summarized the various costs, using clear supporting evidence and a well-defined synopsis of the report goals. Not Submitted Calculation of total variable cost and total fixed cost included, but unclear or incorrect. Calculation of total variable cost and total fixed cost is correct. Calculation of total variable cost and total fixed cost is correct, using clear examples. Calculation of total variable cost and total fixed cost is correct, using clear examples and well-defined reasons for proposal recommendation. Not Submitted Calculation of average variable cost included, but unclear or incorrect. Calculation of average variable cost is correct. Calculation of total average variable cost is correct, using clear examples. Calculation of average variable cost is correct, using clear examples and well-defined reasons for proposal recommendation. Not Submitted Calculation of average fixed cost included, but unclear or incorrect. Calculation of average fixed cost is correct. Calculation of total average fixed cost is correct, using clear examples. Calculation of average fixed cost is correct, using clear examples and well-defined reasons for proposal recommendation. Not Submitted Calculation of marginal cost included, but unclear or incorrect. Calculation of marginal cost is correct. Calculation of marginal cost is correct, using clear examples. Calculation of marginal cost is correct, using clear examples and well-defined reasons for proposal recommendation. Calculation of cross-price elasticity included, but unclear or incorrect. Calculation of cross-price elasticity is correct. Calculation of cross-price elasticity is correct, and a relationship is correctly identified. Calculation of cross-price elasticity is correct, a relationship is correctly identified, and an explanation of the strength of the relationship is welljustified. Not Submitted Not Submitted

Tutor Answer

NKURUMAH
School: Cornell University

Attached.

Quantity (miles of pipeline)
0
1.000
2.000
3.000
4.000
5.000
6.000
7.000
8.000
9.000
10.000
11.000
12.000
13.000
14.000
15.000
16.000
17.000
18.000
19.000
20.000
21.000
22.000
23.000
24.000
25.000
26.000
27.000
28.000
29.000
30.000

Total Cost
$
5.000
$
11.573
$
18.208
$
29.267
$
44.750
$
64.657
$
88.987
$
117.740
$
150.918
$
188.518
$
230.543
$
276.991
$
327.863
$
383.159
$
442.878
$
507.021
$
575.587
$
648.577
$
725.991
$
807.828
$
894.089
$
984.774
$
1.079.882
$
1.179.414
$
1.283.370
$
1.391.749
$
1.504.552
$
1.621.778
$
1.743.429
$
1.869.502
$
2.000.000

Total Fixed Cost
$
5.000
$
5.000
$
5.000
$
5.000
$
5.000
$
5.000
$
5.000
$
5.000
$
5.000
$
5.000
$
5.000
$
5.000
$
5.000
$
5.000
$
5.000
$
5.000
$
5.000
$
5.000
$
5.000
$
5.000
$
5.000
$
5.000
$
5.000
$
5.000
$
5.000
$
5.000
$
5.000
$
5.000
$
5.000
$
5.000
$
5.000

Total Variable Cost
$
$
6.572,82
$
13.208,28
$
24.267,39
$
39.750,13
$
59.656,52
$
83.986,55
$
112.740,22
$
145.917,54
$
183.518,49
$
225.543,09
$
271.991,33
$
322.863,21
$
378.158,73
$
437.877,90
$
502.020,70
$
570.587,15
$
643.577,24
$
720.990,97
$
802.828,34
$
889.089,36
$
979.774,02
$
1.074.882,32
$
1.174.414,26
$
1.278.369,84
$
1.386.749,06
$
1.499.551,93
$
1.616.778,44
$
1.738.428,59
$
1.864.502,38
$
1.994.999,81

Average Fixed Cost
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$

0
5
3
2
1
1
1
1
1
1
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

Average Variable Cost
$
$
7
$
7
$
8
$
10
$
12
$
14
$
16
$
18
$
20
$
23
$
25
$
27
$
29
...

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Anonymous
Goes above and beyond expectations !

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