Question: (1) A vertically integrated firm has 2 divisions; upstream and downstream divisions. The upstream division produces chemical Y, whose average total cost is ATC U

(1)

A vertically integrated firm has 2 divisions; upstream and downstream divisions. The upstream division produces chemical Y, whose average total cost is ATC_U = 10 + 2Q_U, where Q_Uis the quantity of Y. The downstream division has its own average total cost of ATC = 20 + 3Q where Q is the quantity of the firm’s final product. There is no external market. What is the transfer price (P_U)?

Question 55 options:

	P_U = 10 + 2Q_U.
	P_U = 10 + 4Q_U.
	P_U = 20 + 3Q_U.
	P_U = 20 + 6Q_U.
	None of the above.

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