Chemical owns a polystyrene processing plant next to Oil's refinery. The polystyrene plant was built at

the same time that Oil built a benzene plant at the refinery. Benzene is the raw material needed by

Chemical to produce polystyrene. Chemical's managers believe they can sell $50$ million kilograms of

polystyrene per year, which is less than full capacity. Following are Chemical's expected revenues and

costs for the polystyrene plant $($volume is measured using weight in kilograms rather than a liquid

measure such as litres$)$:

Oil can operate at full capacity and sell all the gasoline it produces. Following are Oil's expected

revenues and costs for the production of gasoline:

For every kilogram of benzene that Oil produces, it will forgo selling a kilogram of gasoline. However, $50$

million kilograms per year would be only a small portion of the total volume at the refinery. Following

are Oil's expected revenues and costs for the production of henzene$($these costs include the costs of

refining the crude oil$)$:

Required:

On a company$-$wide basis, should Adams International produce polystyrene this year? Why or

why not?

What is the maximum price that Chemical's managers would be willing to pay for benzene?

Would Chemical's managers be willing to pay the maximum transfer price calculated in part $2?$

Why or why not?

What is the minimum price that Oil's managers would be willing to receive for Benzene?

What transfer price might be fair to the managers of both divisions? Explain.