Speed Company sells printers. It is divided into a manufacturing unit and a sales unit. The marginal cost of producing a printer is $200. External demand is given by P = 1,000 - 0.01Q. Selling and distribution costs total $150 per unit.
a. What is the profit-maximizing retail price and quantity? What are firm profits?
b. Suppose the manufacturing unit has monopoly power to set the transfer price and knows all the information in this problem. What transfer price will it charge? What are the resulting retail price, quantity, and firm profits?