Milner Technologies is a large, multidivision firm. One division, Testing, is well known inside Milner for its efficient information technology $($IT$).$ A smaller division, Energy, has approached Testing with a proposal that Testing provide IT support in the form of machine time for some of Energy$$s administrative work.

After an analysis of the demands that Energy would place on the system, the IT manager of Testing notes that Testing would have to lease a new server because of the additional load. The lease rates for the current server are a fixed annual lease of $$2,600,$ and it averages machine time of $4,200$ hours annually. The new server leases for an annual rate of $$4,000.$ Because the new server is a faster machine, Testing can complete its current requirements in only $3,000$ hours. The work for Energy is estimated to be $1,500$ hours.

In addition to leasing a new server, there are two other changes Testing would have to make in IT$.$ First, it will have to upgrade its server support position. The IT manager estimates that it will cost an additional $$16,000$ per year to get an individual with the necessary advanced training. In addition, Testing has a contract for service from the machine vendor. The support contract is a fixed$-$price contract of $$2$ per hour of machine usage. The current lease contract can be canceled at no cost

a$.$Assume that no outside market exists for this service and that Testing would have excess capacity on the new server. What is the optimal transfer price rule Testing shou

b$.$Suppose Energy uses $1,500$ hours on the new machine. What is the average cost per hour Energy would pay using the rule you developed in requirement $($a$)?$

c$.$ Suppose Energy uses $150$ hours on the new machine. What is the average cost per hour Energy would pay using the rule you developed in requirement $($a$)?$