# Production Functions and Cost Functions in Oil Pipelines

Essay by mdewaikarUniversity, Master's November 2006

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1. For an 18-inch pipeline designed for 150,000 barrels per day, what is the short-run cost per barrel (per thousand miles) of transporting crude oil if the throughput is (a) 50,000 barrels per day (b) 100,000 barrels per day (c) 150,000 barrels per day?

Using chart 7,

a) Cost of transporting 50,000 barrels would be 30 cents.

b) Cost of transporting 100,000 barrels would be 17 cents.

c) Cost of transporting 150,000 barrels would 16 cents.

2. Can a 16-inch pipeline with 10,000 horsepower transport 100,000 barrels of crude oil per day? If a firm has a 20-inch pipeline, how much horsepower must be used to transport 150,000 barrels per day?

This question can be approached in two ways. Both the approaches give different answers.

a. Using Chart 1, a 16-inch pipeline with 10,000 horsepower will NOT be able to transport 100,000 barrels of crude oil per day. The pipeline will require at least 20,000 horsepower.

If a firm has a 20-inch pipeline and wants to transport 150,000 barrels per day, they should use 20,000 horsepower.

b. Using formula , T = (H) (D ) / (0.01046)

When D= 16 inches H= 10,000, we get T= 349619.69 barrels. Thus, a 16 inch line pipeline with 10k horsepower can transport 100k barrels of oil.

If the pipeline is 20 inch and we need to get 150k barrels of oil, using the formula, we will need 357.79

3. Does it appear that there should be many pipelines competing to transport crude oil over a particular route? Why or why not?

I don't think there would be multiple lines competing to transport crude oil over a particular route unless there is more demand than what is currently being supplied. It does not make economic sense to run pipelines at less than maximum capacity...