solution

The Locust Corporation is composed of a marketing division and a production

division. The marginal cost of producing a unit of the firm’s product is

$10 per unit, and the marginal cost of marketing it is $4 per unit. The demand

curve for the firm’s product is P = 100 – 0.01Q

where P is the price per unit (in dollars) and Q is output (in units). There is no

external market for the good made by the production division.

a. How should managers set the optimal output?

b. What price should managers charge?

c. How much should the production division manager charge his counterpart

in marketing for each unit of the product?