Cambridge Products manufactures and sells cat toys and cat beds.The Bed Division incurs the following costs for the production of a single cat bed when 5,000 beds are produced each year.
The company sells cat beds to various pet stores for $26.00.The Toy Division is doing a promotion whereby each customer that purchases ten cat toys during the months of January,February,and March will receive a free cat bed.The Toy Division would like to purchase these beds from the Bed Division.
Assuming the Bed Division is at full capacity,what is the optimal transfer price?
Definitions:
Marginal Cost
The cost incurred by producing one more unit of a product, essential for decision-making in production and pricing strategies.
Perfect Competitor
An ideal market condition where numerous small firms compete against each other, and goods are sold at their marginal cost.
Long Run
A period in economic theory where all factors of production and costs are variable, allowing companies to adjust to market conditions fully.
Perfect Competitor
A theoretical market structure where many firms sell an identical product, entry and exit from the market are easy, and no single seller can influence the market price.
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