EGO decides to use peak-load pricing for electricity during the summer months. During the week between the hours of 8:00 a.m. and 5:00 p.m., the demand for electricity is high; during the off hours the demand is low. The respective demand functions can be given as:

QH = 400 5P (high demand) QL = 50 2P (low demand) where P is the unit price of electricity per hour and Q is amount of electricity used each hour. The

totalcostofprovidingelectricityisgivenby: TC=10+2Q2. a. What is the firms marginal cost function, and what does this equation imply about EGOs ability

to provide electricity?

b. In order to divert electricity use to off-house, EGOs management uses peak-load pricing. Calculate the appropriate prices charged and determine the amount of electricity used for each time period.

c. Calculate the own-price demand elasticity in each market. Do the numbers make sense in the context of this problem?