classical analysis Ralph's firm eonsists of divisions A and B. The output of division A is transferred to division B, where it is processed further and then sold. No eosts are ineurred at center. The division's eost struetures are as foUows:

CA(qJ = 200 + 450!JA - lOql + (l/6)qÄ; and Cs(CIs) = 300 + 250CIa - 10q~ + (1/6)~.

The outputs are eoordinated, implying !JA = CIa. The market price for the finished produet is presently 450 per unit.

a] Determine the firm's optimai output and eorresponding profit.

b] Suppose division B ean order any quantity from A, and will be eharged a transfer price ofT per unit. A is obliged to produce as instructed. Find a T such that maximizing its division ineome willlead division B to prefer the output quantity you determined in [al above.

e] Suppose division A ean manufacture any quantity it desires and wiU be credited with an internai revenue of T per unit for each unit. Find a T such that maximizing its division ineome willlead division A to prefer the output quantity you deterrnined in [a] above.

AppendixLO1