private eost information Retum to problems 7 and 8 above. Now explicitly assume that eaeh division manager knows its respective eost strueture, though is less informed about the other' seost strueture. Center is less informed. The eoordination procedure ealls for the two managers to negotiate a mutually satisfactory eoordinated production plan

(and transfer price).

Suppose eaeh manager is evaluated on the basis of division ineome. Is it likely a profit maximizing solution will prevail? Explain your reasoning.

Conversely, suppose each manager is evaluated on the basis of firm-wide ineome. OO you think it likely a profit maximizing solution will prevail? Explain your reasoning.

AppendixLO1