Use the Following Information for the Next 2 Questions

question 97

Multiple Choice

Use the following information for the next 2 questions.
The Machining Division has a capacity of 2,000 units. Its sales and cost data are:
-If the Assembly Division is currently buying from an outside supplier at $98 per unit, what will be the effect on overall company profits if internal sales take place at the optimum transfer price?

• A) $7,000 increase
• B) $7,300 increase
• C) $300 increase
• D) There is no effect

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Definitions:

Supply Curves

Graphical representations illustrating the relationship between the price of a good and the quantity of the good that producers are willing to supply.

Immediate Market Period

The shortest time frame in economic analysis, where the supply of goods is completely inelastic, meaning quantity cannot be changed in response to price changes.

Short Run

A period where at least one factor of production is fixed, typically seen in economics as a timeframe where businesses cannot adjust all inputs.

Long Run

A period sufficient for all markets and factors to adjust, allowing full analysis of economic conditions without the constraint of fixed inputs.