A Monte Carlo simulation model for a commercial-scale microalgae farm in the US desert Southwest was developed and used to compare costs of producing algal oil with two levels of technology. Ranges of input and output coefficients in the microalgae literature were used to simulate a farm using conventional wisdom regarding production and extraction. An alternative scenario was simulated using experimental data for an actual microalgae farm in the Southwest. The total costs of algal oil ranged from $0.85 to $3.67/pound, with an average of $1.61 (with by-product credits) for the conventional wisdom input/output coefficients. The costs using the test farm's coefficients ranged from $0.15 to $0.45/pound, with a mean of $0.25 (with by-product credits). Improvements in algae strains, feeding, CO2 efficiency, and harvesting are responsible for the improved cost efficiency on the test farm. 2010 AgBioForum.