Answer:
Cost of a ethanol plant with a capacity of 500,000gallons per year: $5,322,875.39
Explanation:
Cost-to-Capacity Formula:
[tex]C_2 = (\frac{Q_2}{Q_1} )^{x} \times C_1[/tex]
q2 = 500,000 capaicity for the estimated facility
q1 = 200,000 capacity for the actual facility
c1 = 3,100,000 cost of the actual facility
x = cost-capacity factor
[tex]C_2 = (\frac{500,000}{200,000} )^{x} \times 3,100,000[/tex]
C2 = 5,322,875.39 = expected cost for the second facility
Notes:
This will be like a cross multiply, but this method introduces a capital factor.
The factor represent if the industry is under economies of scale or diseconomies of scale. This means as the facility grows, the incremental cost decreases for each additional capacity.
When the factor is less than 1 we are assuming an economies of scale
When the factor is greater than one, then we assume a diseconomies of escale ( the cost for an additional capacity increases)
If the factor is 1, it assumes the cost are linear, which is rarely the case.
