Costs of Production Oil Industry

Question: Describe about the Costs of Production for Oil Industry. Answer: Oil industry is one such example where initial fixed cost of discovering and developing an oil field involves huge fixed cost in terms of equipment for drilling, setting up wells and system to transport oil and technology but once the oil field starts producing oil, every extra barrel generated is revenue. Variable cost comprised of power, water needs, etc is very small compared to fixed cost. It gets revenue for every barrel of oil. (Gellert, 2016) Marginal costs depend on circumstances as it might be high in one scenario and low in other for same industry. A manufacturing facility which has to pay high price on ordering at short notice and need to pay overtime to workers will have high marginal cost. In jewellery manufacturing with competition intensity increasing in terms of designs because of high cost of labour, raw material and more time needed, cost of producing one extra jewellery item would be high. (Pietersz, 2005). In hotel industry, as number of guests come profitability increases but after a point when guests become more than availability, they need to invest in infrastructure and land which drives up marginal cost. References Gellert, A. (2016) Do oil companies have fixed variable costs of production?,Small Business Chron, . Pietersz, G. (2005)Marginal cost. Available at: https://moneyterms.co.uk/marginal-cost/ (Accessed: 9 December 2016).