Homework Help is Here – Start Your Trial Now!
Business
Economics
($) ($) ($) ($) ($) $60 $6.50 $108 $6.50 $6.50 $144 $6.50 $168 $6.50 $180 $6.50 $180 $6.50 $168 $6.50 $144 $6.50 $108 %24 %24 AAAAAAAAA

($) ($) ($) ($) ($) $60 $6.50 $108 $6.50 $6.50 $144 $6.50 $168 $6.50 $180 $6.50 $180 $6.50 $168 $6.50 $144 $6.50 $108 %24 %24 AAAAAAAAA

Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter22: Getting Divisions To Work In The Firm’s Best Interests
Section: Chapter Questions
Problem 22.1IP
See similar textbooks
icon
Related questions
Question
Suppose that a paper mill "feeds" a downstream box mill. For the downstream mill, the marginal profitability of producing boxes dedlines with volume. For example, the first unit of boxes increases earnings by $60, the second by $54, the third by $48, and so on, until the tenth unit increases profit by just $6. The cost the upstream mill incurs for producing enough paper (one "unit" of paper) to make one unit of boxes is $6.50. Assume the two mills operate as separate profit centers, and the paper mill sets the price of paper. It follows that the marginal profitability of boxes represents the highest price that the box division would be willing to pay the paper division for boxes.. Furthermore, assume that fixed costs are $0 for the paper mill. The following table summarizes the quantity, total revenue, and marginal costs from the perspective of the paper mill for selling paper to the box mill at various prices.
Transcribed Image Text:Suppose that a paper mill "feeds" a downstream box mill. For the downstream mill, the marginal profitability of producing boxes dedlines with volume. For example, the first unit of boxes increases earnings by $60, the second by $54, the third by $48, and so on, until the tenth unit increases profit by just $6. The cost the upstream mill incurs for producing enough paper (one "unit" of paper) to make one unit of boxes is $6.50. Assume the two mills operate as separate profit centers, and the paper mill sets the price of paper. It follows that the marginal profitability of boxes represents the highest price that the box division would be willing to pay the paper division for boxes.. Furthermore, assume that fixed costs are $0 for the paper mill. The following table summarizes the quantity, total revenue, and marginal costs from the perspective of the paper mill for selling paper to the box mill at various prices.
In the following table, fil in the marginal revenue, total cost, and total profit for the paper mill when selling paper to the box mill at each given price. Total Revenue Price Quantity Marginal Cost Marginal revenue Total Cost Profit (Marginal Profitabillty to the Box Mill) (Units of Paper equivalent to One Box) ($) ($) ($) ($) ($) ($) $60 1 $60 $6.50 %24 $54 $108 $6.50 %24 $48 3 $144 $6.50 %24 $42 4. $168 $6.50 %24 $36 $180 $6.50 %24 $30 6. $6.50 $180 $24 7 $6.50 $168 $18 8 $6.50 $144 $12 9. $6.50 $108 $6.50 $6 10 $60 If the paper mill sets the price of paper to sell to the box milI, it will set a price of and sell units of paper to the box mill. Profits lll be for the paper mill. Companywide profits will be (Hìnt: Recall that the prices in the table represent the marginal profitability of each unit of paper, or box, to the box mill.) Suppose the paper mill is forced to transfer paper to the box mill at marginal cost ($6.50). In this case, the box mill will demand units of paper. This leads to companywide profits of %24 AAAAAAAAA AAAAAAAAA
Transcribed Image Text:In the following table, fil in the marginal revenue, total cost, and total profit for the paper mill when selling paper to the box mill at each given price. Total Revenue Price Quantity Marginal Cost Marginal revenue Total Cost Profit (Marginal Profitabillty to the Box Mill) (Units of Paper equivalent to One Box) ($) ($) ($) ($) ($) ($) $60 1 $60 $6.50 %24 $54 $108 $6.50 %24 $48 3 $144 $6.50 %24 $42 4. $168 $6.50 %24 $36 $180 $6.50 %24 $30 6. $6.50 $180 $24 7 $6.50 $168 $18 8 $6.50 $144 $12 9. $6.50 $108 $6.50 $6 10 $60 If the paper mill sets the price of paper to sell to the box milI, it will set a price of and sell units of paper to the box mill. Profits lll be for the paper mill. Companywide profits will be (Hìnt: Recall that the prices in the table represent the marginal profitability of each unit of paper, or box, to the box mill.) Suppose the paper mill is forced to transfer paper to the box mill at marginal cost ($6.50). In this case, the box mill will demand units of paper. This leads to companywide profits of %24 AAAAAAAAA AAAAAAAAA
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Simultaneous Equation
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Exploring Economics
Exploring Economics
Economics
ISBN:
9781544336329
Author:
Robert L. Sexton
Publisher:
SAGE Publications, Inc
Microeconomics: Private and Public Choice (MindTa…
Microeconomics: Private and Public Choice (MindTa…
Economics
ISBN:
9781305506893
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
Economics: Private and Public Choice (MindTap Cou…
Economics: Private and Public Choice (MindTap Cou…
Economics
ISBN:
9781305506725
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
Essentials of Economics (MindTap Course List)
Essentials of Economics (MindTap Course List)
Economics
ISBN:
9781337091992
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Principles of Economics 2e
Principles of Economics 2e
Economics
ISBN:
9781947172364
Author:
Steven A. Greenlaw; David Shapiro
Publisher:
OpenStax
SEE MORE TEXTBOOKS