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The City of Imperial Falls contracts with Evergreen WasteCollection to provide solid waste collection to households andbusinesses. Until recently, Evergreen had an exclusive franchise toprovide this service in Imperial Falls, which meant that otherwaste collection firms could not operate legally in the city. Theprice per pound of waste collected was regulated at 20 percentabove the average total cost of collection.

Cost data for the most recent year of operations for Evergreenare as follows.

Administrative cost	$	410,000
Operating costs—trucks		1,330,000
Other collection costs		330,000

Data on customers for the most recent year are as follows.

	Households	Businesses
Number of customers	13,000	5,000
Waste collected (tons)	5,000	14,000

The City Council of Imperial Falls is considering allowing otherprivate waste haulers to collect waste from businesses, but notfrom households. Service to businesses from other waste collectionfirms would not be subject to price regulation. Based oninformation from neighboring cities, the price that other privatewaste collection firms will charge is estimated to be $0.04 perpound (= $80 per ton). (1 ton = 2,000 pounds)

  

Evergreen's CEO has approached the city council with a proposalto change the way costs are allocated to households and businesses,which will result in different rates for households and businesses.She proposes that administrative costs and truck operating costs beallocated based on the number of customers and the other collectioncosts be allocated based on pounds collected. The total costsallocated to households would then be divided by the estimatednumber of pounds collected from households to determine the cost ofcollection. The rate would then be 20 percent above the cost. Therate for businesses would be determined using the samecalculation.

Required:

a. Based on cost data from the most recentyear, what is the price per pound charged by Evergreen for wastecollection under the current system (the same rate for both typesof customers)?

b. Based on cost and waste data from the mostrecent year, what would be the price per pound charged tohouseholds and to businesses by Evergreen for waste collection ifthe CEO’s proposal were accepted?

	Price per pound