Abstract
Abstract This study evaluated and verified the relationship between the law of diminishing marginal returns and operating performance by establishing the production function of refineries, taking energy consumption as production input, and refining capacity as production output. By establishing an operating performance model and introducing it to the law of diminishing marginal returns on profits, this study calculated the most profitable refining capacity for operation, which can provide a solid point of reference for the Taoyuan Refinery in cultivating its mid-term and long-term operating strategies for operating performance assessment and improvement. According to actual statistics on operations, production, marketing, and profitability of the Taoyuan Refinery from 2006 to 2010, the findings all indicated an effective operating performance capacity by evaluating the production function and the operating performance model. The results showed that the operational energy efficiency of the Taoyuan Refinery was relatively high during this five year period. But from the aspect of profitability, operating performance was sub-par, due to over-production and the diminishing marginal returns on profits. The main reason for over-production is the political element of the state-owned business, namely in fully supplying market oil demand. The policy objective of the Taoyuan Refinery is to supply adequate oil to the northern market, and its operating objective is to earn the best possible operating profits. After discussions on strategic planning, the Refinery revised its operating strategy of market-oriented operating model; namely, it would adopt a functional operating strategy that involves altering its production function and operating performance model according to the prices of crude oil and other products, as well as market demand to develop the optimal profit-oriented production quantity. The production output, distribution, and margins between supply and demand in the market will reach equilibrium through adjustments in the three major refineries of CPC Corporation, Taiwan, or through international trade with other corporations. Keywords: production function, the law of diminishing marginal return, operating performance, operating strategy, strategic planning