Question

A barrel of crude oil is extracted from shale at a cost of $\$51$, and then transported to and from the refinery at a cost of $\$6$ each direction. Oil is processed three times at the refinery plant, at a cost of $\$9$ each time. What is the profit, in dollars per barrel, if one barrel is sold for $\$93$? (Profit is equal to revenue minus expenses.)
(a) $\$1$
(b) $\$2$
(c) $\$3$
(d) $\$4$

Answer 1

Hint: Find the total cost completing the barrel by taking the sum of all the expenses. To find the sum of completing all the process of barrel, add the cost of extraction of oil with 2 times the cost of transporting the oil and 3 times the cost of processing the oil at the refinery plant. This sum obtained, represents the expenses. To find the profit per barrel, take the difference of the selling price of barrel and the total expenses found above.

Complete step-by-step answer:
It is given that the cost of extraction of the crude oil is $\$51$.
Now, the cost of transportation of the oil to and from the refinery is $\$6$ each direction. Therefore, the total cost of transportation is: \[\$6\times2=\$12\].
Since, the oil is processed three times at the refinery plant, at a cost of $\$9$ each time. Therefore, the total cost of refining is: \[\$9\times3=\$27\].
So, total expenses to complete the barrel is given by: $\$51+\$12+\$27=\$90$.
We have been given that the selling price of a barrel is $\$93$. Therefore, total profit on one barrel is the difference of selling price, that is, revenue, and total expenses on one barrel. So,
$\begin{align}
  & \text{profit}=\$93-\$90\\&\Rightarrow\text{profit}=\$3\\\end{align}$
Hence, option (c) is the correct answer.

Note: While solving this problem we have to take care about all the conditions given in the question. We must consider all the expenses in each process carefully because the language of the question may confuse us. One may note that the cost of transportation to and from the refinery is $\$6$, therefore, we must consider the total cost as the sum of transportation cost in both directions which will be $\$12$. Similarly, the total cost of processing the oil at the refinery plant is $\$27$ because it is processed three times at the cost of $\$9$ each time.