As truckers saw the cost of production rising due to higher gasoline prices, some consultant groups convinced trucking companies to begin producing their own ethanol fuel in hopes of avoiding the high market price for gasoline. Often owners of these trucking companies who sought to produce their own fuel would spend half of their work week devoted to the production of ethanol fuel and even attend numerous lengthy workshops put on by the consultant groups on how to produce the fuel. The consultant groups estimated that the average cost to the trucking companies to produce each gallon of ethanol fuel came to $2/gallon. Assume that this is 25 cents less than the market price for gasoline at the time, but the estimate did not include any time costs involved in the production process. Did the owners of the trucking companies make a good business decision by choosing to produce their own fuel? How do you know? Using economic theory, explain why it might have taken owners from these trucking companies so many hours to produce ethanol fuel? Assume that fuel producers at the time were more efficient in producing fuel than the trucking managers attempting to produce ethanol fuel for the first time.
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