Production Functions and Cost Functions in Oil Pipelines Essay

1. For an 18-inch pipe concern intentional for 150,000 barrel per twenty-four hour period, what is the short-run make up per barrel (per thousand miles) of catching crude crude if the throughput is (a) 50,000 barrels per day (b) 100,000 barrels per day (c) 150,000 barrels per day?victimization chart 7,a) Cost of transporting 50,000 barrels would be 30 cents.b) Cost of transporting 100,000 barrels would be 17 cents.c) Cost of transporting 150,000 barrels would 16 cents.2. Can a 16-inch pipe inception with 10,000 horsepower transport 100,000 barrels of crude oil per day? If a firm has a 20-inch pipeline, how much horsepower must be used to transport 150,000 barrels per day?This question can be approached in two ways. Both the approaches give different answers.a. Using map 1, a 16-inch pipeline with 10,000 horsepower will NOT be able-bodied to transport 100,000 barrels of crude oil per day. The pipeline will subscribe to at least 20,000 horsepower. If a firm has a 20-inch pipel ine and wants to transport 150,000 barrels per day, they should use 20,000 horsepower.b. Using formula , T = (H) (D ) / (0.01046)When D= 16 inches H= 10,000, we get T= 349619.69 barrels. Thus, a 16 inch line pipeline with 10k horsepower can transport 100k barrels of oil.If the pipeline is 20 inch and we select to get 150k barrels of oil, using the formula, we will need 357.793. Does it appear that there should be many pipelines competing to transport crude oil over a particular route? Why or wherefore non?I dont think there would be multiple lines competing to transport crude oil over a particular route unless there is more demand than what is currently being supplied. It does not make economic sense to run pipelines at less than maximal capacity as they inquire a huge investment. The cost of egg laying the line and the materials costs of steel, pipe coating, line block valves, corrosion guard and so forth ar a huge investment and would not be feasible for an oil company if the pipeline would not be supplying oil to its fullest capacity.4. According to Leslie Cookenboo, establish D in human body 1 is not the optimum flora for the make at which it itself is approximately efficient (Q1). How can this be? Explain.Optimum point is the point where the output costs the least per unit. The point where Q1 falls on the curve of plant E is lower than the lowest point on the curve of plant D. Therefore plant E can produce Ds optimum output more cheaply than D.5. Leslie Cookenboo stresses the difficulties and limitations of estimating cost functions on the entirelyt of historical cost data, rather than engineering data of the sort he uses. What are these limitations and difficulties?According to Leslie Cookenboo, where engineering estimation is feasible for cost studies it should be used, since actual costs may be subject to any crook of erratic variations arising from construction or operating conditions unique to particular cases. In cases where enginee ring data is not available, historical data can be used, but using historical data makes the cost estimation given over to errors as it does not take into account the specific environmental factors that collide with a particular situation.6. Explain in commonsense terms why there are economies of measure in pipelines.In general, the average cost of transporting a barrel of oil decreases as total throughput increases. That is, oil pipelines are characterized byeconomies of scale. There are several reasons for thisa) Setup Costs The cost planning, design and installation are frozen(p) setup costs.b) Volumetric Returns to get over Oil Pipelines are characterized by volumetric returns to scale. This happens because the cost of steel depends on its surface area while the capacity of the pipeline depends on its volume. Also, the total of horsepower required is determined by resistance to flow which is change magnitude in the diameter of the pipe. In the case, the output signal fun ction is estimated asThis production function is characterized by increasing returns to scale.Doubling line diameter and horsepower leads to more than a fourfoldincrease in output but only a doubling in costs.c) Long run glacial costs The cost of the military group that monitor the pipelines is a long-run fixed cost due to the fact that a minimum number of personnel is required to monitor the pipelines regardless of the throughput.d) For the same level of reliability, grandr pipelines require relatively fewer pumps in reserve.7. Leslie Cookenboo has been senior economics adviser in the corporate planning department of Exxon Corporation. In what ways might Exxon sustain made use of his findings?Leslie Cookenboos study has 3 major findingsa. Economies of scale characteristic of the operation of pipe lines require that oil must be carried conglomerated in as self-aggrandizing quantities as is possible in large diameter lines. This gives the least battery-acid costs obtainable. Ex xon can reduce its transportation costs by transporting oil inlarge quantities in large diameter lines.b. Pipelines should not be run at throughputs appreciably infra capacity otherwise higher costs per barrel will be incurred than need be. Exxon can avoid higher costs per barrel by operating the pipelines at maximum capacity.c. Capacity of a large line can be expanded appreciably without increasing average costs. reduced average costs can be obtained with moderate expansions.