Zap Electronics Produces Advanced Function, Hand-Held Calculators

Essay

Zap Electronics produces advanced function, hand-held calculators. Its subsidiary, LQ Displays, produces display modules which Zap uses in each calculator. LQ operates in a competitive market; each display sells for $5.00 on the open market. Management has determined that the demand curve for quantity sold per month of the hand-held calculators is:
Q_c = 25,625 - 125P_c
while Zap's marginal cost for hand-held calculators, excluding the cost of the display module is:
MC_c = .004Q_c
In addition, management has determined that the total cost function for the display modules is:
TC_d = .5Q_d + .005Q_d²
a. At what final product price and rate of output will the firm maximize profit?
b. How much of the transfer product should be produced?
c. Should the final product division obtain all of its display modules for the calculators from LQ Displays? Why or why not?