A Multinational Corporation Has Two Semiautonomous Divisions: Production and Marketing

Essay

A multinational corporation has two semiautonomous divisions: production and marketing. The production division manufactures a product that is purchased and then resold by the marketing division. The marginal cost functions for the production division and for the value added by the marketing division are defined below.
MC_P = 100 + 2Q
MC_M = 2Q
The demand function for the product is:
QD = 120 - 0.50P
Assume that there is no external market for the output of the production division. How many units should be produced and what transfer price should be paid to the production division by the marketing division?