British Petroleum

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British Petroleum
Group Presentation 6 Curt Kiebler, Joe Bond,
Brittney Trich
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Table of
Table of Contents

Joe Bond History of BP What is
Economics? Opportunity Cost Substitutions and
Complements
Brittney Trich Curt Kiebler Taxes
Perfect
Competition Substitution Effect
Price Discrimination Cost
Governments
Role Profit

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History

• BP started back in 1901 when William DArchy
  obtained a concession from the Shah of Persia to
  explore for oil resources of the country.
• DArchys resources were diminished
• 1905 Burmah Oil Company.
• 1908 they struck oil in Southwest Persia for the
  first time.
• 1909 the Anglo-Persian Oil Company.
• Charles Greenway seeked out more revenue and
  capital.
• British Governement.

www.bp.com
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• History Cont
• Greenway got his money and an outlet for his oil,
  and the British got fuel for their navy.
• Exploration extended from the Middle East,
  Europe, Africa, South America and Canada.
• 1935 the Anglo-Iranian Oil Company was formed.
• The postwar reconstruction of Europe, the high
  demand for oil enabled them to expand greatly.
• 1940s sales profits rose to record levels.
• There were arguments and conflicts among the
  Iranian government and the Anglo-Iranian Oil
  Company.
• 1954 British Petroleum Company was formed.

www.bp.com
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What is economics???

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Economics Is

• That social science that deals with the way
  society chooses to allocate scarce resources in
  order to satisfy present and future wants and
  desires

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• The value of the best alternative given up in
  order to get something.
• Example
• BP loses revenue for BP express
  if they choose to have more gasoline on hand and
  pay for more gasoline, rather than having more
  food, drinks, and various other products to sell
  in BP Express.

Opportunity Cost
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Substitutes and Complements
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TAXES

• Specific Tax- set dollar amount per unit
• BP charges a current gas price of 1.37 per
  gallon
• In PA, the tax on gasoline is 0.44 per gallon
  which

shifts BPs market supply curve upward by the
amount of the tax.
s
s
1.37
1
10
1.81
1.37
1

• New higher supply curve tells us BPs gross price
  what they actually get before they pay the tax
• Gross price is 1.81
• New supply curve also tells us BPs net price
  the amount BP gets to keep
• Gross price -TaxNet price
  1.81-0.441.37

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Substitution Effect

• BP vs
  Crossroads
• BPs price per gallon Crossroads
  price per gallon
• 1.37 1.37

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If BP lowers its price to 1.36 The quantity
demanded for BP will increase
P
Q
The quantity demanded for Crossroads will decrease
P
Q
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COSTS

• Fixed costs - costs of fixed inputs
• includes plants, machinery, land, buildings
• Variable costs costs of variable inputs
• includes labor/hourly wages
• Fixed Costs Variable Costs Total Costs

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Total Revenue and Total Cost

• For the year 2002, BP earned a total revenue of
  180,186,000
• For the year 2002, BP incurred a total cost of
  158,267,000
• Total Revenue Total Costs Profit
• 180,186,000 - 158,267,000 21,919,000

TC
TR
P
www.morningstar.com
Q
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Two Definitions of Profit

• Accounting Profit
• Total Revenue - Accounting Costs
• (only Explicit)
• Economic Profit
• Total Revenue All Costs of Production
• (Explicit and Implicit)

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Perfect Competition

• BP fits the characteristics of
• Perfect Competition
• BP has a large number of buyers and sellers
• Sellers offer a standardized product
• Easy entry or exit from the market
• BP is a price taker
• BP treats the price of its output as given.

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BP Firm is assumed to be profit maximizers in a
perfectly competitive market

• Because of homogeneous product and perfect
  knowledge assumptions
• BP takes the market price as given and reacts to
  it
• Their objective is to maximize profits
• And profits are simply the difference between
  Total Revenue and Total Costs
• Profit is maximized when MRMC

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Price Discrimination

• Price Discrimination- is charging prices to
  different customers for reasons other than
  differences in cost.
• Requirements for Price discrimination
• There must be a downward-sloping demand curve for
  the firms output.
• The firm must be able to identify consumers
  willing to pay more.
• The firm must be able to prevent low-price
  customers from reselling to high price customers.

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Governments Role

• Government sets regulations on keeping the air
  clean
• EPA (The Environmental Protection Agency)- Has
  the power to direct businesses to take specific
  actions. They have detailed control over what
  substances a business can release into the
  atmosphere or into the water.
• EPA Reduce Toxins and Carbon Monoxide
• Public utilities commissions set the prices for
  gas.
• The Government also sets limits on
  Transportation Storage

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Government enforced taxes

• Excise tax- which is a tax on specific goods or
• services
• State Tax- tax paid by business to the state
• Federal Tax- tax paid by business to the
• Federal Government

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Questions?