Air Comfort Electronics produces small, electric, Victorian-reproduction fans for home and office use. The final product division of the company manufactures all parts of the fan except the electric motor, and then assembles, packages and distributes the product. The fan motors are produced by a separate division of the firm called Westside Armature Works.
Westside could sell the motors in the open market to a number of other fan and appliance manufacturers at a standard price of $2.50. There is vigorous competition in the electric motor industry and it is unlikely that, for the size and type motor needed for the fan, any but the going price can be obtained.
Management has determined that the demand curve in quantity sold per month for its most popular model, the Casa-Frio model is:
Qc = 8,250 - 100Pc, so that MRc = 82.5 - .02Qc)
while Air Comfort's marginal cost for the Casa-Frio fan, excluding the cost of the display module is:
MCc = .003c
In addition, management has determined that the marginal cost for the electric motors is:
MCm = .0005Qm
a. At what final product price and rate of output will the firm maximize profit?
b. How much of the transfer product should be produced?
c. Should the final product division obtain all of its motors for the fan from Westside Armature Works? Why or why not?
Correct Answer:
Verified
View Answer
Unlock this answer now
Get Access to more Verified Answers free of charge
Q50: When a firm is practicing price discrimination
Q51: Use the following information for Questions 14
Q52: Two-part pricing is a pricing strategy:
A) where
Q53: A company that produces diet supplements using
Q54: Academia Nuts, Inc is an indoor play
Q56: QC Electronics produces small, hand-held calculators. The
Q57: Bundling is a pricing strategy:
A) where the
Q58: A firm produces two products, "f" and
Q59: Jasper's is a home cleaning company that
Q60: Where there is a perfectly competitive external
Unlock this Answer For Free Now!
View this answer and more for free by performing one of the following actions
Scan the QR code to install the App and get 2 free unlocks
Unlock quizzes for free by uploading documents