Thursday, November 8, 2007

Academic Application - 11/8/07

In Calculus, we learned that demand and revenue can be expressed as functions, and how to use the demand function to calculate revenue. Today, C.N.N. reported the current demand for oil...

HOUSTON -(Dow Jones)- The chief executive of ConocoPhillips' (COP) Thursday said oil demand will be constrained by supply, adding that it will be "very difficult" for the world to produce more than 100 million barrels a day.

Also today, Reuters reported the current U.S. oil price...
WASHINGTON (Reuters) - Energy Secretary Sam Bodman said on Thursday the Bush administration will not change its policy of using the government's oil reserve only for major supply problems and not to curb prices, in spite of record high oil prices and market fears about tight winter supplies.

Bodman also said at an energy conference that the Energy Department's plan to keep about 12 million barrels of crude oil off the market and begin delivering it to the Strategic Petroleum Reserve in January won't "materially affect" oil prices.

Bodman said he was "very concerned" about soaring oil prices, which he said suggests more supplies are needed from OPEC and other major oil producing nations.

Though the U.S. oil price hit a record $98.62 a barrel on Wednesday at the New York Mercantile Exchange, Bodman declined to say whether $100-a-barrel oil was inevitable.

Let's pretend for a second that ConocoPhillips can meet the demand for oil, which is 100 million barrels. How much money would they make? The function for calculating revenue, given the demand, is R(p)=pD(p), where p is the price charged per unit, D(p) is demand, and R is revenue. In this instance, p=$98.62 and D(p)=100,000,000. So R(p)=98.62(100,000,000). Multiply that out, and ConocoPhillips's revenue is $9,862,000,000, or $9.862 billion. The lesson is that you should get into the oil business.

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