Solution Library

Calculate Demand Function, Transfer Price and Number of Units To Be Produced

Question

A firm has two semi-autonomous divisions: production and marketing.  The production division manufactures a product that is purchased and then resold by the marketing division.  The marginal cost functions for the production division and for the value added by the marketing division are defined below.

      MCP = 2QP               MCM = QM

The demand function for the final product is QD = 100 – P.  Assume that there is no external market for the output of the production division.  

a)    How many units should be produced?
b)    What transfer price should be paid to the production division by the marketing division?
c)    Now suppose there is a perfectly competitive market for the good produced by the production division and the price is $70 per unit.
       i)    How many units will the marketing division sell to consumers?
      ii)    How many units will the production division produce?
d)     How many units will the production division sell to the external market?

 
Summary

The question belongs to Finance and it is about a scenario where a company’s demand function is given. The number of units to be produced, the transfer price to be paid to the production division, etc have been answered in the solution in detail.

Total Word Count 237

Download Full Solution

Comments

  • HWA
    Rasha

    this is a very good website

  • HWA
    maani

    I have 50 questions for the same test your page is showing only 28

  • HWA
    joeanne

    hi can you please help or guide me to answer my assignments. thanks

  • HWA
    joeanne

    hi can anyone help or guide me to my assignments. thanks

  • HWA
    Monik


  • HWA
    Cristina

    This solution is perfect ...thanks

  • HWA
    Janete

    Hello Allison,I love the 2nd image that you did! I also, had never heard of SumoPaint, is something that I will have to exolpre a bit! I understand completely the 52 (or so) youtube videos that you probably watched. Sometimes they have what you want, sometimes they don't! However, it is always satisfying when you are able to produce something that you have taught yourself. Great job!Debra 0 likes

  • HWA
    Sandeep

    Perfect bank of solution. 

  • HWA
    Oxana

    great !

  • HWA
    Paul Brandon-Fritzius

    thanks for the quick response. the solution looks good. :)

  • HWA
    tina Johnson

    thnx for the answer. it was perfect. just the way i wanted it. 

  • HWA
    Giuseppe

    works fine.