# Rasmussen College Demand Elasticity and Cost Analysis of Building a Pipeline Paper

Description

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.
You are a member of the Cost Department. At a recent meeting of the board of directors, it was estimated that the cost of building the pipeline would be two million dollars in total for the production of a 30,000-mile stretch, \$5,000 of which is a fixed cost in taxes. They also want you to determine if the currently available alternative energy source is a strong substitute good for oil, which may interfere with expected profits from this venture.
Instructions
As a cost analyst at your firm, you are asked to evaluate the marginal cost of producing the pipeline per 1,000-mile stretch as well as the average total cost of producing the pipeline per 1,000 miles. Submit a 2-page report detailing the cost. Include calculations in your Word document.
You will also include a table showing the final figures for the following costs:
Total Fixed Cost
Total Variable Cost

Average Variable Cost
Average Fixed Cost
Marginal Cost
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. If the price increases to \$55/gallon of crude oil, the quantity demanded of the alternative energy source increases by 20%.

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Quantity (miles of pipeline)
Total Cost
Total Fixed Cost
Total Variable Cost
0 \$
5.000 \$
5.000
1.000 \$
11.573
2.000 \$
18.208
3.000 \$
29.267
4.000 \$
44.750
5.000 \$
64.657
6.000 \$
88.987
7.000 \$
117.740
8.000 \$
150.918
9.000 \$
188.518
10.000 \$
230.543
11.000 \$
276.991
12.000 \$
327.863
13.000 \$
383.159
14.000 \$
442.878
15.000 \$
507.021
16.000 \$
575.587
17.000 \$
648.577
18.000 \$
725.991
19.000 \$
807.828
20.000 \$
894.089
21.000 \$
984.774
22.000 \$
1.079.882
23.000 \$
1.179.414
24.000 \$
1.283.370
25.000 \$
1.391.749
26.000 \$
1.504.552
27.000 \$
1.621.778
28.000 \$
1.743.429
29.000 \$
1.869.502
30.000 \$
2.000.000
Average Fixed Cost
Average Variable Cost
Marginal Cost

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Tags:
cost analysis

demand elasticity

total variable cost

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