ECO 353 Manegerial Economics Quiz 5

ECO 353 Managerial Economics Quiz 5

Name: ________ ________________________________________________________

You must show all your work.

1) 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?

2) Students are willing to pay $700 for a computer and $100 for additional software. Workers are willing to pay $500 for a computer and $200 on the additional software. If the unit cost for computers is $200 and the unit cost for the additional software is $50, …

a) If there is no bundling what is the price for …

i) A computer

ii) Additional software

b) If the computer and additional software are only sold together under a pure bundling strategy what is the price of the bundle?