1.b. The city should charge 10 cents per unit since that is the marginal cost when residents use at least 100 units/day, which they will if the city charges 10 cents or less. It should charge 10 cents per unit to all users, even those who are receiving their power from the hydroelectric facility, since if those users were to cut their consumption, they would free up hydroelectric capacity, which could then be used to serve others who are currently receiving their power from the more costly steam generator.

2. The winter demand can be served entirely by the underground spring, so the price should be 2 cents per hundred gallons in the winter months. Water must be drawn from the lake to meet demand in the summer monts, so the price should be 4 cents per hundred gallons in summer.

6a. Both firms will use process A and emit 8 tons per day.

6b. Each firm must switch to process C. The cost will be $120-$50=$70 for Sludge Oil and $500-$100=$400 for Northwest Lumber, for a total of $470.

Chapter 15

6. The network will choose the programs that generate the most profit. An episode of Springer would attract an audience of 12 million viewers, while one of Masterpiece Theater would attract only 8 million. Those audience sizes would generate payments of $1.2 milion and $800,000, respectively, from Colgate. Net of production costs, the network would thus earn $800,000 for a Springer episode, and only $400,000 for an MT episode. The network would thus maximize its profit by filling one time slot with Springer and the other with the weight-loss infomercial.