Answer to Question #13072 in Economics of Enterprise for Muna

Question #13072
Offshore Petroleum's fixed costs are $2,500,000 and its debt repayment requirements are $1,000,000. Selling price per barrel of oil is $18 and variable costs per barrel are $10. (a) Determine the breakeven output (in dollars). (3 marks) (b) Determine the number of barrels of oil that offshore must produce and sell in order to earn a target (operating) profit of $1,500,000. (3 marks) (c) Determine the degree of operating leverage at an output of 400,000 barrels. (3 marks) (d) Assuming that sales of oil are normally distributed with a mean of 362,500 barrels and a standard deviation of 100,000 barrels, determine the probability that Offshore will incur an operating loss.
1
Expert's answer
2012-08-16T10:30:14-0400
(a)&
Breakeven output = $2,500,000/($18-$10)=312 500

(b)
Output = 312 500 +$1,500,000/($18-$10)= 500 000

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