3. Now assume that the firm is divided into two profit centers. One division manufactures the product

Question:

3. Now assume that the firm is divided into two profit centers. One division manufactures the product at a total cost of TC = Q2 and then transfers it to a selling division that faces the firm’s demand curve. The selling division has no other costs other than the transfer price for the product. Assume that the manufacturing division has the power to set the transfer price and that the selling division can only buy internally. The selling division, however, can select the quantity to purchase. What transfer price will the manufacturing unit select? What are the resulting profits of the two units?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Managerial Economics And Organizational Architecture

ISBN: 9781260571219

7th International Edition

Authors: Clifford W. Smith, Jerold Zimmerman, James Brickley

Question Posted: