Suppose Race Car Motors has the following demand for its automobiles:

P = 20,000 - Q

Suppose its downstream division's cost of assembling cars is: C_A(Q) =8000Q, while its upstream division's cost of producing engines is C_E(Q_E) = 2Q_E²

If there is no outside market for its engines, how many engines and cars should the firm produce to maximize profits and what should the optimal transfer price be?

Answer rating: 100% (QA)

Demand curve P 20000 Q 20000 Qa Qe P 20000 Qa Qe Total revenue for a... View the full answer