Question

As an oil refiner, you are able to produce $60 worth of unleaded gasoline from one barrel of Alaska North Slope (ANS) crude oil. Because of its lower sulfur content, you can produce $43 worth of unleaded gasoline from one barrel of West Texas Intermediate (WTI) crude. Another oil refiner is offering to trade you 21000 bbl of Alaska North Slope (ANS) crude oil for 17000 bbl of West Texas Intermediate (WTI) crude oil. Assuming you currently have 17000 bbl of WTI crude, the added benefit (cost) to you if you take the trade is closest to ________.

Answer 1

The added benefit (cost) to you if you take the trade is closest to $500,000.

Step-by-step explanation:

The added benefit (cost) to you if you take the trade is closest to $500,000.

To calculate the added benefit (cost) of the trade, you need to compare the value of the refinery yield for each type of crude oil. You produce $60 worth of unleaded gasoline from one barrel of Alaska North Slope (ANS) crude oil, and $43 worth of unleaded gasoline from one barrel of West Texas Intermediate (WTI) crude oil. Therefore, the added benefit (cost) is calculated as follows:

• Value of ANS crude oil: $60/barrel * 21,000 barrels = $1,260,000
• Value of WTI crude oil: $43/barrel * 17,000 barrels = $731,000
• Benefit (cost) of the trade = Value of ANS crude oil - Value of WTI crude oil = $1,260,000 - $731,000 = $529,000