Bug-Off is a start-up biotechnology firm specializing in non-toxic pesticides for organic farming. Scientists at one of Bug-Off's subsidiaries, Beetle Rid, recently developed a new pesticide, N44, to rid crops of a particularly nasty genus of blue hair beetles, which destroy apple trees. In addition to producing this new pesticide, Beetle Rid produces another pesticide, O77, for external sale.

Per kilogram (kg) data on the selling price, variable costs, machine hours necessary for production are given below. Note that there are no fixed manufacturing or selling costs.

	N44	O77
Selling price	24.00	12.00
Variable Manufacturing Cost	5.00	4.00
Variable Selling Cost	3.50	2.00
Machine Hours	2.0	0.5
External Monthly Market Demand (in kgs)	5,000	10,000

Interpret the data on External Monthly Market Demand as follows: Beetle Rid can sell up to 5,000 kgs of N44 and 10,000 kgs of O77 at their respective market pricesbut cannot sell even one kilogram over these amounts, even at a lower price. If Beetle Rid chooses to sell fewer kilograms (of either product), it cannot charge a higher price.

Beetle Rid has 16,500 machine hours of capacity available every month.

Another division of Bug-Off, Lawn Love has an opportunity to process N44 further into a consumer product that would protect lawns from the Blue Hair beetle. Lawn Love would incur additional variable manufacturing costs of 6 per kilogram in reducing the potency of the pesticide and packaging it for home use. An outside distributor has offered Lawn Love 28/kg for up to 7,000 kgs of the modified N44 per month as long as it provided in 1,000 kg increments.

Beetle Rid does not incur any variable selling costs for internal transfers.

All divisions are only evaluated as profit centers.

1. What is the optimal transfer priceper kgfor Beetle Rid to charge Lawn Love for the new pesticide, N44, for any quantity between 0 to 750 kgs? That is, figure out the optimal TPper kgfor any quantity of internal transfers of N44 between 0 and 750 kgs.
2. What is the optimal transfer price per kg for Beetle Rid to charge Lawn Love for the new pesticide, N44, for any quantity between 751 to 5,750 kgs? That is, figure out the optimal TP per kg for any quantity of internal transfers between 751 and 5,750 kgs.
3. What is the optimal transfer price per kg for Beetle Rid to charge Lawn Love for the new pesticide, N44, for any quantity between 5,751 to 8,250 kgs? That is, figure out the optimal TP per kg for any quantity of internal transfers between 5,751 and 8,250 kgs.
4. Given the optimal transfer pricing schedule you calculated in Q1 - Q3 above, how many kilograms of N44 will the Lawn Love Division want transferred from the Beetle Rid Division each month in order to maximize the Lawn Love Division's profits?
5. At the level of transfers you determined in Q4 what are Bug-Off's profits each month?
6. For Q6 and Q7, assume that Bug-Off has chosen to set the transfer price for N44 to 22/kg instead of the optimal transfer pricing schedule you calculated above. That is, the Lawn Love division will be charged 22 per kilogram for each kilogram of N44 that it wants transferred, regardless of how many kilograms it wants. Under this transfer pricing policy, how many kilograms of N44 will Lawn Love want transferred from the Beetle Rid division each month?
7. At the level of transfers you determined in Q6 what are Bug-Off's profits each month? Note, do NOT compare the profits to the amount you determined in Q5 above.