Question

QUESTION 3 "As an oil refiner, you are able to produce $55 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 18500 bbl of West Texas Intermediate (WTI) crude oil. Assuming you currently have 18500 bbl of WTI crude, the added benefit (cost) to you if you take the trade is closest to Note: Express your answers in strictly numerical terms. For example, if the answer is $500, write enter 500 as an answer."

Answer 1

The added benefit (cost) to us if we take the trade is closest to 359500.

Working

Price of one barrel of Alaska North Slope (ANS) crude oil = $55

Price of one barrel of West Texas Intermediate (WTI) crude oil = $43

Trade offer of 21000 barrel of Alaska North Slope (ANS) crude oil in exchange of 18500 barrel of West Texas Intermediate (WTI) crude oil.

Added benefit from the trade will be calculating total benefit from 21000 barrel of Alaska North Slope (ANS) crude oil less 18500 barrel of West Texas Intermediate (WTI) crude oil, formulated as:-

Added benefit = (21000 * $55) – (18500 * $43)

                           = (1155000) – (795500)

                           = 359500