Loyalist-Acadian Telephone, a crown corporation, provides telephone service to rural New Brunswick. In order to provide one unit of service at any time of day, the corporation must have one unit of fixed capital in place. Each unit of capital, which costs $3 per unit per day, must be paid for only once per day, although it can be used to provide service at various times during the day. However, each unit of capital can be used to provide only one unit of service at any particular instant in time.

In addition, the provision of telephone service entails the use of a variable input, which costs $2 for each unit of service provided. This cost is incurred each time a unit of service is supplied.

L-A Tel has identified two different time periods during which telephone service is used. The quantities of service demanded (daily) during these periods are

The government has imposed a break-even requirement on L-A Tel (total revenues from users must be sufficient to cover total costs).

Antoine-Joseph Leblanc, the VP in charge of operations, has decided to set prices according to the Steiner Peak-Load Pricing model.

He has calculated the optimal pricesP^PEAKandP^OFF-PK.

What is the total surplus (this is allconsumers' surplus) when the firm uses the optimal combination of peak-load and off-peak prices?

Question options:

1) Total Surplus at least $5,500

2) Total Surplus at least $2,500 but less than $3,500

3) Total Surplus at least $4,500 but less than $5,500

4) Total Surplus less than $2,500

5) Total Surplus at least $3,500 but less than $4,500