Question
The Laker Co. and the Warrior Co. are both subsidiary companies owned by the NBA Jam Co. The Laker Co. makes a product called the
The Laker Co. and the Warrior Co. are both subsidiary companies owned by the NBA Jam Co. The Laker Co. makes a product called the Brick with a variable cost per unit of $9 and total fixed expenses of $400,000. The Laker Co. can sell the product to other companies for $18. The Laker Co. has a capacity of 10,000 units, but is currently selling 9,000 units to outside companies (thus, there is idle capacity of 1,000 units). The Warrior Co. uses the Brick in one of its products called the Championship. The Warrior Co. can buy the Brick from an outside company for $16 per unit. If the Warrior Co. needs 2,000 units of the Brick, what would be the range of acceptable transfer prices between the Laker Co. and the Warrior Co.?
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