11 Jun Project 1 Exec Summary
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It is important to incorporate a summary of all the analysis performed in steps 2-4 in your executive summary.
· The purpose of the memo is missing. See sample Executive Summary example in the classroom.
Project 1 Executive Summary
Based on the current market price for natural crude oil and the aggregate demand and supply of oil in the market, an equilibrium price exists at $60 per barrel. At this price per barrel, a total of 102 barrels of oil would be demanded. This information is helpful for determining the quantity of oil to produce for profit maximization. This information is important in concert with identifying the nature of the oil market, which is currently an oligopolistic market structure. This is true because a limited number of enterprises and government-controlled firms have generally been able to dominate this market in the past. This means that these companies are able to have a substantial impact on oil production and price within the global economy. In all, approximately 100 countries produce crude oil or natural gas. However, the vast majority of production of oil and gas come from just five countries: Russia, Saudi Arabia, the U.S., Iraq, and Iran. There are a total of 47 companies that produce oil in the United States, but none is as large as ExxonMobil.
In terms of the profit maximization case study, the total cost per gallon is $2.049. This means that per-gallon profit is measured based on this cost. Based on a one cent per gallon increase in retail price and the subsequent change in revenues, the price elasticity of demand is 21.74. This is defined as a highly elastic product, meaning that purchasing decisions are based closely on the price of the product rather than other factors such as quality or convenience. Based on the information provided in the case study, the profit maximizing price is $2.169, which would put per-barrel profit at $0.12.
However, the marginal cost does not equal the marginal revenue at this profit maximizing point. That said, the case study reveals that the ideal price for maximizing profit is $2.169. In this way, a clear recommendation can be made to Cal in this case study regarding the price at which his gas should be sold. Without undertaking this exercise, it would likely be difficult for Cal or any other gas station owner to be fully certain of the price at which gas should be sold.
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