Originally Posted by banyon
Refineries haven't been applying to build new plants because they like the supply right where it is.
Yet another absurd moonbat narrative.
Let me break it down into simple terms---
Let's say it costs the oil co. $60 dollars to purchase a barrel of crude, and it costs them $20 dollars to refine it, and $20 dollars to distribute and market it. They need to turn around and sell that product to make a profit, cover overhead, pay employees etc. What is the marginal cost of refining, distributing and marketing 100 barrels of oil? 200 barrels (doubling output) ?Does it increase profit (revenue - costs) or decrease profit?
An example of marginal cost:
If total cost of producing 10 widgets is $5 dollars, and the cost of producing 20 is $7 dollars, then the marginal cost of increasing output is $2 dollars. The price is basically determined by supply and demand, but there are other factors such as elesticity, inelasticity, the law of diminishing marginal utility etc.
Let's say the price is set at $2 a widget, and I can sell 10 widgets, I make $15. If I sell 20 widgets, I make $33 dollars. In this example, I've doubled output and increased profit (revenue-costs).
The price of a gallon of gasoline does not increase or decrease based on the refineries costs. It increases or decreases based on the variable cost of the barrel of crude. The oil company simply passes those costs onto the consumer--- who's demand incidentally is not inverse to supply. The law of diminishing returns doesn't change much when it comes to gasoline usage.
So there you have it: price is determined by what a barrel of crude costs the company, and it is not affected by the marginal costs of refining it.
Oh, it's also increased by taxation.
In 1950 the tax on a gallon o' gas was 1.5% of the price. In 2011, it's 20% of the price.
This is all common stuff you learn in the first semester of college if you major in economics.
It's pretty amusing this ass says he has a B.A. in economics:
Originally Posted by KC native
Don't forget to mention them idling and shutting down refineries that existed because they like suplly where it is either.