To decide on the optimal number of Megawatt hours (MWh) of electricity options the utility company should purchase, we need to consider the cost of the options versus the potential cost of purchasing electricity on the spot market. The goal is to minimize the expected total cost. The option cost is $25 per MWh, giving the right to purchase electricity at $9 per MWh in August. If they don't have enough options to cover the demand, they will have to pay the spot market price of $38 per MWh. Let's calculate the expected cost for different levels of options purchased and determine the optimal number of MWh for which options should be bought. 1. **Calculate the cost of purchasing options for different levels (0.85, 0.90, 0.95, 1.00, 1.05 MWh) and the expected cost of having to buy additional electricity on the spot market if the demand exceeds the options purchased.** 2. **The total expected cost for each option level is the sum of the cost of purchasing the options and the expected cost of buying on the spot market.** 3. **Choose the option level that minimizes this total expected cost.** Let's perform these calculations. The utility company should purchase options