Question

Ethan's Ethanol experiences a daily production of 33,000 gallons of ethanol from local corn with a total cost of

$68,310 per day, including
$12,540 of fixed costs. What is the firm's average variable cost per gallon of ethanol produced?

A) $2.03
B) $2.20
C) $1.60
D) $1.35

Answer 1

To find the average variable cost per gallon of ethanol produced, subtract the fixed costs from the total cost and divide by the daily production. The firm's average variable cost per gallon of ethanol produced is C) $1.69.

Step-by-step explanation:

To find the average variable cost per gallon of ethanol produced, we need to subtract the fixed costs from the total cost and divide the result by the daily production. The fixed costs are given as $12,540 and the total cost is $68,310. So, the variable cost is $68,310 - $12,540 = $55,770.

To find the average variable cost per gallon, we divide the variable cost by the daily production. Therefore, the average variable cost per gallon of ethanol produced is $55,770 / 33,000 = $1.69.

Therefore, the firm's average variable cost per gallon of ethanol produced is $1.69. None of the given options match exactly, but option C, $1.60, is the closest.