A columnist for the Wall Street Journal discussed the fact that some firms were buying existing drilling operations in Canadian oil sands regions. These operations would not have been profitable to build from scratch but were profitable to operate given that they were already built because, as the columnist said, “The key is the distinction between fixed and variable costs. While the fixed investment in new oil sands projects is prohibitive, variable costs can be in the low $20 range per barrel.” The columnist estimated that the fixed cost of a new oil sands drilling operation could be $95 per barrel. At the time the column was written, the price of oil was about $50 per barrel.

a. Assuming that variable cost of an existing oil sands operation is $20 per barrel and the price of oil is $50 per barrel, how much were the companies selling these drilling operations losing per barrel?
b. At a price of $50 per barrel, were the companies buying the existing drilling operations earning a profit of $30 per barrel? If not, explain what information we would need to calculate their profit.