Question: A company has two divisions operating in two different countries. The two divisions manufacture the same product and sell this product locally in their own

A company has two divisions 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. The following equations define the two divisions total cost and demand curves, where Q is the number of units each division produces and sells.

TotalCostA = 100Q + 200,000

TotalCostB = 80Q + 250,000

PriceA = 2000 3Q

PriceB = 2500 2Q

Division B is relocating to a new manufacturing facility and wont be able to produce during the transition period. As a result, Division B will purchase from Division A to satisfy Division Bs local demand.

(A) If shipping is free, what is the transfer price that maximizes profit for the entire company (4 points)? At this transfer price, how many units will be transferred (4 points)?

(B) If shipping is free and Division A sets the transfer price. Assume that Division A knows Division Bs demand curve, what transfer price will Division A set to maximize Division As profit (8 points)? At this price, how many units will be transferred (4 points)?

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