The Milk Chocolate Division of Mmmm Foods, Inc

question 7

Multiple Choice

The Milk Chocolate Division of Mmmm Foods, Inc. had the following operating results last year: Milk Chocolate expects identical operating results this year. The Milk Chocolate Division has the ability to produce and sell 200,000 pounds of chocolate annually.
-Assume that the Peanut Butter Division of Mmmm Foods wants to purchase an additional 20,000 pounds of chocolate from the Milk Chocolate Division.Milk Chocolate will be able to increase its profit by accepting any transfer price above:

• A)$0.40 per pound
• B)$0.08 per pound
• C)$0.15 per pound
• D)$0.25 per pound

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Definitions:

Absolute Advantage

A concept in international trade that refers to a country's ability to produce a good more efficiently than other countries.

Comparative Advantage

The ability of a party to produce a particular good or service at a lower marginal and opportunity cost than another party.

Cakes

Baked goods that are typically sweet, often layered or decorated, and are usually served on special occasions like birthdays or weddings.

Absolute Advantage

A concept in international trade that occurs when one country can produce a good or service more efficiently than another country, using the same amount of resources.