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The answer is 20 cents per ton mile and $42 dollars per ton, which leads to an overall production cost of $1.84 per gallon.

What is interesting about the solution is that the minimum total cost does not come from the lowest transport cost and the lowest material cost.

The best solution is always a balance of factors:

  • Availability of wood versus transportation costs to the site of the wood
  • Availability of wood versus cost of wood

The right balance determines the overall cost of the ethanol fuel being produced.

Choosing the cheapest wood for best profit in one part of the supply chain may lead to high transportation costs, creating a profit loss in another part of the chain. In this case, the supply chain would be a business failure.