A company has two divisions A and Z operating in two different countries. The two divisions manufacture the same product and sell this product locally in their own country. Both divisions have excess capacity. Division A has a marginal cost of $800, and Division Z has a marginal cost of $600. The following equations define the two divisions’ demand curves, where P is the price, and Q is the corresponding demand (i.e., quantity).

PA = 3000 – 3QA

PZ= 3300 – 2QZ

Division Z is relocating to a new manufacturing facility and won’t be able to produce during the transition period. As a result, Division Z will purchase from Division A to satisfy Division Z's local demand.

What is the transfer price that maximizes profit for the entire company? At this transfer price, how many units will be transferred?

If Division A sets the transfer price. Assume that Division A knows Division Z's demand curve, what transfer price will Division A set to maximize Division A’s profit? At this price, how many units will be transferred?

Answer rating: 100% (QA)

Capacity in units 30000 Outside interest in units30000 Spa... View the full answer