A firm has a division that produces chemical Y,whose average total costs are ATC = 50 + 2Q (where Q is the quantity of Y),and a marketing division that adds its own average total costs of ATC = 20 + 3Q.There is no external market price of Y.The transfer price of Y should be:
A) $50.
B) $4Q.
C) $50 + 4Q.
D) $2Q.
E) $5Q.

Question

Quizplus · Accepted Answer

The transfer price should reflect the total cost incurred by both the producing and marketing divisions. Therefore, the transfer price should be the sum of both division's average total costs: 
Transfer price = ATC(producing division) + ATC(marketing division) 
Transfer price = (50 + 2Q) + (20 + 3Q) 
Transfer price = 70 + 5Q 
Thus, the correct choice is C, $50 + 4Q.

A Firm Has a Division That Produces Chemical Y,whose Average