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Essay / Research Paper Abstract
A 5 page paper evaluating Harvard case study 9-189-038. Cenex is an oil refiner contemplating greater focus on asphalt production rather than gasoline in the face of federal gas tax increases of more than 100 percent in 1981. It is reasonable to predict that asphalt demand – and therefore price – will increase as increased funds become available through highway taxes attached to gasoline, but the company appears not to have fully considered the inelastic nature of gas prices. Its predictions of reduced consumption are questionable. Bibliography lists 4 sources.
Page Count:
5 pages (~225 words per page)
File: CC6_KScenex.rtf
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Unformatted sample text from the term paper:
an oil refiner owned by several farmers cooperatives in the upper plains region of the United States. It serves customers in the Wyoming and Montana region, where it also
historically obtained most of the crude oil it refines. Canadian fields also supply Cenex, with a crude that is higher in asphalt content than is that of the more
southerly region of Cenexs operational territory. Expansion of the federal highway program in the early 1980s resulted in a significant price increase for
gasoline in the form of a federal tax increase of more than 100 percent. Cenex believed that the demand for gas would decline in the face of rising prices
and that the governments interest in the nations highways would increase demand and therefore the price of - asphalt. The purpose here is to investigate those beliefs.
Pricing Issues One of the principal components of Cenexs decision to focus on asphalt is
its belief that demand for gas will decline as prices increase. The federal government is increasing per-gallon tax more than 100 percent, from 4 cents a gallon to 5
cents a gallon. This tax is paid directly by the consumer, and producers have few choices available to them in efforts to maintain steady pricing. Cenex could reduce
its gas price by the same 5 cent increase and so hold pump prices steady, but such an action is not one conducive to company growth. The action would
decrease revenues immediately, while offering the company no recourse for the future tax increases that are certain to come. Cenex is correct in
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