Question

"As an oil refiner, you are able to produce $36 worth of unleaded gasoline from one barrel of Alaska North Slope (ANS) crude oil. Because of its lower sulfur content, you can produce $30 worth of unleaded gasoline from one barrel of West Texas Intermediate (WTI) crude. Another oil refiner is offering to trade you 31000 bbl of Alaska North Slope (ANS) crude oil for 15000 bbl of West Texas Intermediate (WTI) crude oil. Assuming you currently have 15000 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

Benefit of taking the trade $666,000

we need to find the worth of gasoline that can be generated from each of the options

with 15000WTI bbl we can generate $450,000 worth of gasoline. ($30 X15000bbl)

with the same 15000bbl of WTI- we will get 31000 bbl of ANS crude

now the worth of 31000 bbl of ANS crude is $1,116,000 ($36 X31000bbl)

The additional benefit from the trade is $666,000 ( 1,116,000- 450,000)