Deliverable 6 - Profit Maximizing Quantity and Price Present.docx

Deliverable 6 - Profit Maximizing Quantity and
Price Presentation
Competency
Understand economic terminology and economic definitions
pertaining to
decisions made by managers.
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. As an
alternate investment, they are considering increasing production
at existing
facilities.
In order to compare these investment opportunities, the head of
the Cost
Analysis Department has tasked you with finding the profit
maximizing
quantity and price if production continues at existing facilities.
You will then
present this to the head of the department in a meeting, along
with supporting
documentation such as cost curves, data tables, and equations.
Instructions
As a Cost Analyst at your firm, you are being asked to evaluate
the profit
maximizing quantity and price for your product to submit to

your manager.
Assume that your firm is a monopoly supplier of oil in your
region, due to
extensive trade restrictions.
Another team member in the Cost Analysis Department has
compiled the
necessary data in the linked spreadsheet. You will have to
complete the
missing columns for ATC, AVC, and MC. If the company is
incurring a profit,
include the amount of the profit earned when quantity and price
are
maximized. If your company is incurring a loss, prove whether
it should shut
down or continue operating at a loss. Use graphs and equations
to support
your argument.
You will create a short screen recording with narration arguing
your case to
your manager. Create a PowerPoint presentation to support your
https://content.learntoday.info/Competency/ECO3250/Deliverab
le%206%20Spreadsheet.xlsx
recommendation which can serve as the visuals for your
recorded screen
capture.
There are many free screen recording software/Webware options
available
(such as Screencast-O-Matic) to use in presenting your
PowerPoint. Make
sure that both your voiced narration and the PowerPoint slides

are captured
during your screen recording.
Be sure to include a cohesive introduction and conclusion of
your findings.
Your body slides should include any relevant curves created in
Excel from the
data spreadsheet.
After recording, paste a link to the recording on the last slide of
the
PowerPoint presentation. Attach the PowerPoint presentation as
well as the
Excel spreadsheet showing how you created the curves and
obtained the
profit maximizing quantity and price, as well as the
corresponding profit or
loss.
Format your PowerPoint to include a title page, introduction,
body slides,
conclusion, and references. Remember to cite your sources
using correct
APA format, and also use correct grammar, spelling, and
formatting.
Grading Rubric
F F C B A
0 1 2 3 4
Not
Submitted No Pass Competence Proficiency Mastery

Not
Submitted
Introduction and/or
conclusion did not
summarize the
profit-maximizing
recommendation.
Introduction and
conclusion
summarized the
profit-maximizing
recommendation.
Introduction and
conclusion
summarized the
profit-maximizing
recommendation,
using clear
supporting
evidence.
Introduction and
conclusion
summarized the
profit-maximizing
recommendation,
using clear supporting
evidence and a well-
defined synopsis of
the report goals.
Not
Submitted

One or more of
average cost,
marginal revenue,
and average total
costs curves are not
Average cost,
marginal revenue,
and average total
costs curves are all
included, but with
minor errors.
Average cost,
marginal revenue,
and average total
included, with no
errors.
Average cost,
marginal revenue,
and average total
included, with no
included, or include
major errors.
errors and justification
for inclusion.
Not

Submitted
Equilibrium price
and quantity
included, but one or
both are incorrect.
Equilibrium price
and equilibrium
quantity are both
correct.
Equilibrium price
and equilibrium
quantity are both
correct, and a profit-
maximizing equation
included.
Equilibrium price and
equilibrium quantity
are both correct, and
a profit-maximizing
equation is included
and clearly explained
using corresponding
graphs.
Not
Submitted
Profit/loss included,
but are incorrect.
Profit/loss are
correct, but the

shut-down decision
is incorrect.
Profit/loss and shut-
down decisions are
correct and clearly
presented.
Profit/loss and shut-
down decisions are
correct, clearly
presented, and
accurately depicted
graphically.
Deliverable 6 - Profit Maximizing Quantity and Price
Presentation
PROPOSAL TO BUILD A PIPELINE 1
PROPOSAL TO BUILD A PIPELINE
2
Hello Angela
Below you will find comments for your Deliverable 7
submission.
I have included a diagram below showing what was included
and correct (YES), what needs editing (Yes – but requires
editing) and what was not included (NO)
Please let me know if you have any additional questions.
Marlo Chavarria

Proposal to Build A Pipeline
Angela Petersen
Rasmussen College
Author Note
This paper is being submitted on February 8, 2019, for
Audra Sherwood’s, Managerial Economics course.
Proposal to Build a Pipeline: Oil Company X
Introduction
Every company endeavours to capture a bigger market share. In
most cases, companies will resort to expansion through
investing on more projects. This is what Oil Company X is
doing. On the same note, such an expansion will have an impact
on the demand and supply in the market. This paper discusses
the company’s extension of its oil pipeline, the effect of
economic shocks on its demand and supply, cost analysis
regarding to its new investment, its alternative investment as
well as their expected returns.
Discussion
Building a new oil pipeline by Oil Company X is a good
strategy for meeting the high oil demand in the market. This is
because with such an extension, the company will be in a

positon to increase the supply of oil to areas which it could not
reached earlier. In a situation of economic shocks, the demand
and supply of oil as a source of energy will be adversely
affected. The company will too be affected as the supplier of
oil. For example in the case of natural disasters, the supply of
oil and even other alternative sources of energy is generally
impeded. Suppliers including Oil Company X will be cut short
by such natural disasters from reaching the market. With
shortage of supply, therefore, the demand will increase which
will consequently lead to increase in prices of oil and other
sources of energy. Generally, natural disasters will negatively
impact on the profitability of the company since its supplies are
disturbed. This applies to the case of recession as well. This is
because during recession the general economy is performing
poorly. The demand is low. For the case of substitute products,
the demand for oil from Oil Company X will fall. This is
because consumers will opt for alternative sources of energy
which can be trading relatively cheaper compared to oil in the
market.
The extensive trade restrictions that the government will put in
place upon the completion of the extension will give the firm an
added advantage over its competitors in the market. In fact the
restrictions will give monopoly powers to the company since the
restrictions will have prevented other firms from trading in the
market. Therefore, the company will be in a monopoly market.
The firm will have to adopt the following new strategies as a
measure towards maximizing its profits in the monopoly market:
i. Boxing Day sales- the firm ought to take opportunity of peak
seasons for example during Christmas time since this is the time
when products are on high demand.
ii. Coupons- the firm should use this pricing technique whereby
it segments its customers in terms of sensitive ones and the less
sensitive. This means it will be able to reap from sales from
various kinds of customers (Hunt, 2018).
iii. Pricing complements- the firm ensures that their products
can be accompanied by certain complements especially to loyal

customers. For example rewarding customers who spend more
on their oil products to a specified limit. This will attract new
customers and motivate existing customers to spend more.
iv. Unadvertised prices- the company can provide discount only
when they ask for. This pricing technique will boost the morale
of a customer to engage more with the firm (Spulber, 1991; Yu,
2013).
Figure 1:
Figure 2:
From Figure 2, the new expected profit-maximizing quantity
and price is obtained where marginal cost is equal to marginal
cost, MR=MC. The profit-maximizing price and quantity,
therefore, is $32.12 million. The corresponding average variable
cost (AVC) is $30.31 million.
The expected total profit is given by;
($32.12-$30.31) million*15 years= $27.15
million
Expected return= 90% ($320-$27.15) = $292.85 million
Alternative investment:
The expected returns of the alternative investment is given by
80% (1.6)+20%(1.15)= $1.51 billion.
Conclusion
Based on the expected returns, Oil Company X should invest on
the alternative investment since it has higher returns.

References
Hunt, J. (2018). Pricing strategy: Pricing Strategies in
Monopolies. Retrieved from:
https://smallbusiness.chron.com/pricing-strategies-monopolies-
15298.html
R.A. (February26, 2012). Oil: When the supply shocks are
demand shocks and the demand shocks are supply shocks
Spulber, D.F. (1991). "Monopoly Pricing
Strategies," Discussion Papers 936, Northwestern University,
Center for Mathematical Studies in Economics and Management
Science.
Yu, K. (2013). Monopoly Power and Pricing Strategies:
Business 5017 Managerial Economics.
MR, MC and AVC ($, 'Millions')
MR 0 82.7 70.100000000000009 57.499999999999972
44.900000000000006 32.300000000000011
19.700000000000045 7.0999999999999659 -5.5 -
18.099999999999966 -30.700000000000045 MC 0
27.467000000000002 29.921000000000003
30.655000000000001 31.388999999999996
32.123000000000005 32.856999999999999
33.591000000000008 34.324999999999989
35.058999999999969 35.793000000000006 AVC 0
27.467000000000002 28.694000000000003
29.347666666666669 29.858000000000001 30.311
30.735333333333333 31.143285714285717 31.541
31.931888888888881 32.317999999999998

TR, TC and AVC ($, 'Millions')
TR 0 82.7 152.80000000000001 210.3 255.2
287.5 307.2 314.3 308.8 290.7 260
TC 1.72 29.19 59.11 89.76 121.15 153.28
186.13 219.72 254.05 289.11
324.89999999999998 AVC 0 27.467000000000002
28.694000000000003 29.347666666666669
29.858000000000001 30.311 30.735333333333333
31.143285714285717 31.541 31.931888888888881
32.317999999999998
Deliverable 7 - Proposal to Build a Pipeline
Competencies
• Understand economic terminology and economic definitions
pertaining
to decisions made by managers.
• Explain and demonstrate knowledge of concepts including the
supply/demand relationship, price ceilings and floors, and
market
surpluses and shortages.
• Elasticity, consumer choice, utility, productivity, and nature
of costs.
• Demonstrate how economic theory contributes to strategic

managerial
decision-making.
• Understand various market structures and impacts upon firms,
consumers, and government policies.
• Calculate profits and profit maximization in order to
determine the
optimal price and output at which firms should produce.
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.
As a cost analyst at Oil Company X, submit a proposal to the
board of the
company critiquing the costs and benefits of building a new oil
pipeline that
stands to generate copious amounts of revenue. Include in your
report the
following: expected changes to supply and demand, a cost
analysis of the
project, the cross-price elasticity of an alternative energy
source, cost curves,
the new expected profit-maximizing quantity and price of oil
after completion,
a risk assessment evaluating liabilities from potential
environmental damage,
and a final recommendation.
Instructions

Use the Excel document attached below to complete the
assignment, and
submit it to the Drop Box when finished. Student Excel
Spreadsheet
As an economic analyst at your firm, you are being asked to
evaluate this
investment opportunity and submit a 5-page proposal as a Word
document.
https://content.learntoday.info/Competency/ECO3250/Deliverab
le%207%20Spreadsheet.xlsx
You must include an explanation of expected changes to supply
and/or
demand from economic shocks such as natural disasters and
recessions, as
well as the anticipated effect of substitute goods (alternative
energy sources)
flooding the oil market. Be sure to include the expected impact
on equilibrium
quantity and price in your regional market from these potential
changes.
Another team member in the Cost Analysis Department has
compiled the
necessary data in the attached spreadsheet below.The total
upfront cost of
this project is $1.72 million in fixed costs. Be sure to include in
your proposal
any relevant curves graphed from the data in the spreadsheet.
Your Excel
spreadsheet needs to include the following columns in addition
to what has
been given to you:

1. TFC
2. TVC
3. ATC
4. AVC
5. MC
Assume that your firm will hold market power as a supplier of
oil in your
region, due to extensive trade restrictions the government has
agreed to put in
place after completion of the pipeline. Define the new market
structure, and
give new pricing strategies the firm can use to maximize profits
for this
particular market structure.
You will also include graphs to show new expected profit-
maximizing quantity
and price of oil after completion. After determining the profit-
maximizing price
and quantity, as well as the corresponding average variable cost,
determine
the expected total profit for the 15-year duration the pipeline
will be in
operation.
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
of crude oil. If the price increases to the profit-maximizing
price, the quantity
demanded of the alternative energy source increases by 20%.
Explain if these
goods are complementary goods, substitute goods, or non-

related goods. If
there is a relationship, indicate whether the relationship is weak
or strong.
Justify your answer with an explanation based on the elasticity
figure.
Assume there is a 10% probability of the pipeline leaking, with
an expected
liability of $3.2 billion which will be deducted from total profit.
There is a 90%
probability the pipeline will not leak. Determine the expected
return on this
investment, as well as the variance.
The firm also has an alternative investment which will yield
$1.6 billion over
the course of the same 15-year period, with a probability of
80%, or $1.15
billion with a probability of 20%. Calculate the expected return,
as well as the
variance. The risk should be expressed as the standard
deviation.
Perform a marginal analysis to determine if the firm should
build the pipeline,
considering currently available investments and opportunity
costs.
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.
Grading Rubric
F F C B A
0 1 2 3 4
Not
Submitted No Pass Competence Proficiency Mastery
Not
Submitted
Proposal
recommendation is
included, but does
not apply the
concept of
opportunity cost.
Proposal
recommendation is
included, and
applies the concept
of opportunity cost.
Proposal
recommendation is
included and applies

the concept of
opportunity cost,
using clear
examples.
Proposal
recommendation is
included, applies the
concept of opportunity
cost, using clear
examples and well-
defined reasons for
proposal
recommendation.
Not
Submitted
Explanation did not
summarize the
changes in supply
and/or demand
curves, or
anticipated curve
shifts were
incorrect.
Explanation
summarized the
anticipated changes
in supply and/or
demand curves
correctly, but did not
adequately explain
changes in
equilibrium price

and quantity.
Explanation
summarized the
anticipated changes
in supply and/or
demand curves
correctly, adequately
explained changes in
equilibrium price and
quantity, and used
clear examples of
each.
Explanation
summarized the
anticipated changes
in supply and/or
demand curves
correctly, adequately
explained changes in
equilibrium price and
quantity, used clear
examples of each,
and included well-
defined reasons for
proposal
recommendation.
Not
Submitted
Calculation of some

costs included, or
contained major
errors.
Calculation of all
costs included, and
contained minor
errors, or no
relevant curves are
graphed.
Calculation of all
costs are correct but
had minor errors with
graphing.
Calculation of all
costs are correct, and
all relevant curves are
graphed correctly.
Not
Submitted
Calculation of
cross-price
elasticity is
included, but is
unclear or
incorrect.
Calculation of cross-
price elasticity is
correct.

price elasticity is
correct, and a
relationship is
correctly identified.
price elasticity is
correct, a relationship
is correctly identified,
and explanation of
strength of the
relationship is well-
justified.
Not
Submitted
Calculations of
expected value and
variance for both
investments are
incorrect with major
errors.
Calculations of
expected value and
variance for both
investments contain
minor errors, but the
overall risk is not
quantified.
Calculations of
expected value and
variance for both
investments are

correct, but the
overall risk is
incorrectly quantified
or interpreted.
Calculations of
expected value and
variance for both
investments are
correct, and risk is
correctly quantified
and interpreted.
Not
Submitted
Explanation of
anticipated market
is incorrect, or
recommendations
for new pricing
strategy are not
included.
Explanation of
anticipated market is
correct, and
recommendations
for new pricing
strategy are
included.
Explanation of
correct, and
recommendations for

new pricing strategy
are included, using
clear examples.
Explanation of
correct, and
recommendations for
new pricing strategy
included, using clear
examples and well-
defined reasons for
proposal
recommendation.
Not
Submitted
Profit/loss and
profit-maximizing
price and quantity
are included, but
with major errors.
Profit/loss and profit-
maximizing price
and quantity are
included, but with
minor errors.
maximizing price and
quantity are correct
and clearly
presented.

maximizing price and
quantity are correct,
clearly presented, and
accurately depicted
graphically.
Deliverable 7 - Proposal to Build a Pipeline
Sheet1PRICE QUANTITY (in millions)TOTAL
REVENUEMARGINAL REVENUETOTAL COST (in
millions)TOTAL FIXED COST (in millions)TOTAL
VARIABLE COST (in million)AVERAGE TOTAL
COSTAVERAGE VARIABLE COSTMARGINAL
COST890$0.00$0.00$1.7282.71$82.70$82.70$29.1976.42$152.8
0$70.10$59.1170.13$210.30$57.50$89.7663.84$255.20$44.90$1
21.1557.55$287.50$32.30$153.2851.26$307.20$19.70$186.1344
.97$314.30$7.10$219.7238.68$308.80-
$5.50$254.0532.39$290.70-$18.10$289.112610$260.00-
$30.70$324.90

Deliverable 6 - Profit Maximizing Quantity and Price Present.docx

Recommended

Recommended

More Related Content

Similar to Deliverable 6 - Profit Maximizing Quantity and Price Present.docx

Similar to Deliverable 6 - Profit Maximizing Quantity and Price Present.docx (12)

More from cargillfilberto

More from cargillfilberto (20)

Recently uploaded

Recently uploaded (20)

Deliverable 6 - Profit Maximizing Quantity and Price Present.docx