A tech firm, Pied Piper, offers cloud database services for small businesses, but activity levels during its

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Question:

A tech firm, Pied Piper, offers cloud database services for small businesses, but activity levels during its peak-time hours (10:00 AM - 4:00 PM; 6 hours in total) and off-peak hours (the remaining 18 hours of the day) are very different. Pied Piper's clients use the service to perform database lookups. Let's denote a unit of computing capacity as a UNIT. Each database lookup requires two units of computing capacity (so, two UNITs) for an hour. Pied Piper currently has the computing capacity to perform 2,500 database lookups each hour. The daily cost of capacity is $18 per UNIT. Thus, Pied Piper's daily total computing capacity cost is $90,000 ($18 per UNIT x 5000 UNITs). During the peak period, Pied Piper clients perform 2,500 database lookups per hour, which uses up all Pied Pier's computing capacity each hour (5,000 UNITs). During the off-peak period, its clients only conduct 1,000 database lookups per hour (and thus only consume 2,000 UNITs per hour). There are no economies or diseconomies of scale for computing capacity cost. The computing capacity must be purchased in advance and cannot be scaled up or down on short notice.

1. Calculate the cost per database lookup during the off-peak period.

2. Calculate the cost per database lookup during the peak period.

Pied Piper is implementing a new feature, a database merge. Each database merge requires three times the computing capacity of a database lookup (i.e., 6 UNITs).

1. Calculate the cost per database merge during the off-peak period.

2. Calculate the cost per database merge during the peak period.

3. Put yourself in the place of a consultant that has just developed the costs for database lookups and database merges. How would you recommend Pied Paper use this information to take specific actions that, in turn, might lead to changes in the actual cost structure? The ideal answer to this question will include specific actions that Pied Piper can implement.