How does Standard Oil maximize its profits?
Standard Oil Company owns two oil fields. Field 1 can produce up to 20 million barrels of oil per day, and Field 2 can produce up to 15 million barrels of oil per day. At Field 1, it costs $37.50 to extract and refine a barrel of oil. At Field 2, it costs $41.20 to extract and refine a barrel of oil. Standard sells oil to two countries: Australia and Argentina. The shipping costs per barrel are show in the table below.
Cost per barrel of shipping
----------------Australia-------Argentina
Field 1---------$5.50-----------$6.80
Field 2---------$4.20-----------$5.30
Each day, Australia is willing to buy up to 10 million barrels of oil at $65.80 per barrel, and Argentina is willing to buy up to 25 million barrels of oil at $68.40. How does Standard Oil maximize its profits?
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