Economics Assignment: Analyzing Exxon Mobil Production Costs

This economics assignment analyzes the inputs and costs associated with the production of lubricating oil by Exxon Mobil. The assignment begins by defining inputs, factors of production, fixed costs, and variable costs, using Exxon Mobil's use of crude oil, natural gas, and machinery as examples. It then explores the factors affecting input selection, including price, availability, and the production process (capital-intensive vs. labor-intensive). Finally, the assignment suggests strategies for Exxon Mobil to adapt to increasing crude oil prices, recommending technological efficiency improvements to reduce production costs. The reference list includes several academic sources on economics and business management.

Running head: ECONOMICS ASSIGNMENT
Economics Assignment
Name of the Student:
Name of the University:
Author’s Note:

ECONOMICS ASSIGNMENT 1
Table of Contents
Answer to Question-a......................................................................................................................2
Answer to Question b......................................................................................................................3
Answer to Question c.......................................................................................................................4
Reference List..................................................................................................................................5

ECONOMICS ASSIGNMENT 2
Exxon Mobil is identified as the largest internationally trading oil and gas company in the
world. Presently the company makes use of innovation and technology simultaneously to
mitigate the ever growing energy needs of the world (ExxonMobil 2018). The company
possesses a leading inventory of resources and claims to be one of the largest refiners, chemical
manufacturer and petroleum product marketer.
As a manufacturing organization it will also uses inputs and has some fixed and variable
costs. In this assignment the inputs and costs associated with the production of lubricating oil
will be discussed.
Answer to Question-a
The inputs or factors of production or resources can be defined as the elements which are
used in the production process in order to produce output or the final goods. The quantity of
inputs determines the quality and quantity of output. Exxon Mobil uses crude oil, natural gas and
advanced machineries for producing lubricating oil. Hence these can be considered as the key
inputs of Exxon Mobil.
A fixed cost is associated with the production process and is identified as the cost that
does not change with an increase or decrease in the amount of goods or services produced
(Pindyck & Rubinfeld 2014). Fixed costs are those which are needed to be borne by an
organization or company irrespective of the business activities.
On the other hand variable cost is defined as the expense borne by the corporate entity
that changes in alienation with the changes in the quantity of output. Variable costs rise or fall on
the basis of the volume of production of the company (Miller & Benjamin, 2017). There is a

ECONOMICS ASSIGNMENT 3
direct relation which means an increase in the volume of production will in turn increase the
level of variable cost.
The fixed cost of Exxon Mobil will be the cost associated with infrastructure like land,
building, energy requirements, machineries etc.
Variable cost of Exxon Mobil will be the cost associated with accruing raw materials like
crude oil, natural gas and human capital.
Answer to Question b
The prime factors that affects the selection of inputs can be stated as follows,
Price: The first and foremost factor that affects the selection of inputs is the price level
of those inputs (Jensen et al. 2017). It is quite evident that an increase in the price of input will
raise the variable cost of the company which in turn will affect the cost effectiveness of the
production process and increase the cost of production. For instance if the price of crude oil
increases the cost of production of lubricating oil will increase and the price of the product will
rise. This may cause widespread effect in the market.
Availability: It can also be stated that availability of inputs also affects the choice of
input combination. For instance if a single type of natural gas becomes unavailable the company
will opt for selecting another one. This may also increase the cost of production.
Process: Production process can be of two types which are namely capital intensive
process and labor intensive process. In the capital intensive process the producer endows more of
the capital compared to labor as inputs. On the other hand, in the labor intensive process the
producer endows more labor than capital (Drummond et al. 2015). However, the selected
company is more reliant on technology and uses high-end machineries. If it is observed that the

ECONOMICS ASSIGNMENT 4
cost of technology is increasing drastically it may shift to a labor intensive production process
which will again change the input combinations.
Answer to Question c
From the above analysis it can be stated that the inputs combination may change because
of different factors like price, the process of production or the availability of a specific input.
Hence in a particular situation where the price of a specific input is increasing it would be
suggested to change that particular input and start using an alternative one. In the context of
Exxon Mobil the price of crude oil is increasing with the passage of time. However, in this
context this raw material cannot be changed or substituted (Jorgenson et al. 2016). In such a
situation it can be recommended that the organization should increase its technological
efficiency. Hence the process would become more technology intensive where the organization
will invest significantly so the cost of production ca be reduced from that aspect, which means at
the same cost quantity of production will increase. This will minimize the increase in cost on the
part of the crude oil price increase. For instance the US crude oil price rose by 1.5% to $64.51
dollar per barrel which significantly increased the cost of production.

ECONOMICS ASSIGNMENT 5
Reference List
Drummond, M. F., Sculpher, M. J., Claxton, K., Stoddart, G. L., & Torrance, G. W.
(2015). Methods for the economic evaluation of health care programmes. Oxford
university press.
ExxonMobil. (2018). About ExxonMobil. [Online] Available at:
http://corporate.exxonmobil.com/en/company/about-us [Accessed 17 Mar. 2018].
Jensen, R. C., Mandeville, T. D., & Karunaratne, N. D. (2017). Regional economic planning:
Generation of regional input-output analysis. Routledge.
Jorgenson, D., Gollop, F. M., & Fraumeni, B. (2016). Productivity and US economic
growth (Vol. 169). Elsevier.
Miller, R. L., & Benjamin, D. K. (2017). Economics of macro issues. Pearson.
Pindyck, R. S., & Rubinfeld, D. L. (2014). Microeconomics.