Managerial Economics & Organizational Architecture 6th Edition by James Brickley , Clifford Smith ,Jerold Zimmerman

Exercise 2

Geriatrics Inc. has a patent on a new type of hospital bed. The marginal cost of producing the beds is $400. The company has significant production capacity. Geriatrics sells the beds to customers on the open market and also uses them internally throughout its nursing home chain. The external demand for the product is given by P = 5,000 - Q. Assuming that Geriatrics wants to profit-maximize, what is the optimal external market price What is the optimal internal transfer price