A large firm's automotive division receives parts from the firm's parts division at a price of $450 each. Each part is produced at a marginal cost of $400 and the final product is sold for $5,000 each. Which of the following statements is true?
A) The firm is maximizing profits at the current price of the parts and the final product.
B) The parts unit should sell the parts to the automotive division at a price of zero.
C) The firm should outsource the production of the parts to another firm to maximize profit.
D) Since the final product is sold at a price of $5,000, the parts unit can increase the price of the parts sold to the automotive division.
E) The automotive division should pay $400 for each part to maximize profits.
Correct Answer:
Verified
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