Safety-Kleen Operates the World's Largest Oil Refinery at Elgin, Illinois

question 98

Short Answer

Safety-Kleen operates the world's largest oil refinery at Elgin, Illinois. You have been hired by the company to determine how to allocate its intake of up to 70 million gallons of used oil to its three refinery processes: A, B, and C. You are told that electricity costs for process A amount to $150,000 per million gallons treated, while for processes B and C, the costs are respectively $100,000 and $50,000 per million gallons treated. Process A can recover 60 percent of the used oil, process B can recover 55 percent, and process C can recover only 50 percent. Assuming a revenue of $4 million per million gallons of recovered oil and an annual electrical budget of $4.9 million, how much used oil would you allocate to each process in order to maximize total revenues

Allocate __________ million gals to process A, __________ million gals to process B and __________ million gals to process C.

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Definitions:

Opportunity Cost

The value of the next best alternative forgone as the result of making a decision.

Optimum

The most favorable condition or level at which the best possible outcome or maximum efficiency is achieved.

Sweater

A knitted garment typically covering the upper body, designed for warmth or fashion.

Neue Sachlichkeit

German, “new objectivity.” An art movement that grew directly out of the World War I experiences of a group of German artists who sought to show the horrors of the war and its effects.