Answer to Question #51394 in Economics of Enterprise for Candy
Write-Right, Inc. is a vertically integrated firm that produces both paper and writing tablets. The demand for tablets is given by:
PT = 1.00 - 0.001QT
where QT is the quantity of tablets produced. The marginal cost of producing the paper necessary for each tablet is:
MC = 0.20 + 0.001QT
It costs $0.10 to make the paper into a writing tablet. If there is no external market for the paper, what transfer price should top management set for the paper?
PT = 1.00 - 0.001QT MC = 0.20 + 0.001QT It costs $0.10 to make the paper into a writing tablet. If there is no external market for the paper, the transfer price can be found at the point, where P = MC = MR MR = TR' = (P*Q)' = 1 - 0.002Q MR = MC, so: 1 - 0.002Q = 0.2 + 0.001Q 0.003Q = 0.8 Q = 0.8/0.003 = 267 units P = 1 - 0.001*267 = $0.733 So, top management should set the price P = $0.733 for the paper.
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This is really great, I thought it’s going to be low quality and wasn’t excepting any high quality for the price but surprisingly I got HD full mark for the assignment. Would recommend it. Did it for discrete maths.