The Timex Group, a large multinational watch-maker, has its headquarters in the Netherlands. It has subsidiaries in many countries, including the Timex Group USA and TMX Philippines, Inc. One particular type of specialty watch is produced in the Philippines for export to the Timex Group USA. Suppose the inverse demand function for this watch in the United States is p = 90 – 2Q, where p is measured in dollars and Q is measured in thousands of watches per week. These watches are produced at a constant marginal cost of $ 10 per watch by TMX Philippines. Timex USA treats the transfer price charged by TMX Philippines as its marginal cost. If these two subsidiaries are instructed to maximize combined profits, what are the price, quantity, and transfer price? Could TMX Philippines raise its own profit by charging a higher price?
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