1. Assume you can purchase either a kw of capacity for $5000 for hydropower or $500 for natural gas. Assume further that hydropower has constant marginal costs of $0.01/kwh and natural gas has constant marginal costs of $0.05/kwh. The capacity you buy lasts forever (marginal costs include maintenance) and you have an opportunity cost of capital of 8.76%

   a. What is the annual fixed cost associated with hydropower?

   b. What is the annual fixed cost associated with natural gas?

   c. Assuming you use 8760 kwh annually, what is the annual variable cost of hydropower?

   d. Assuming you use 8760 kwh annually, what is the annual variable cost of natural gas?

   e. What is the total cost for each of annual production of 8760 kwh?