A company is highly centralized.The Cutting Division,which is operating at capacity,produces a component that it currently sells in a perfectly competitive market for $13 per unit.At the current level of production,the fixed cost of producing this component is $4 per unit and the variable cost is $7 per unit.Grinding Division would like to purchase this component from the Cutting Division.The price that the Cutting Division should charge the Grinding Division per unit for this component is:
A) $7.
B) $11.
C) $13.
D) $15.

Question

Quizplus · Accepted Answer

The Cutting Division should charge the Grinding Division the market price of $13 per unit, as it is operating at capacity and selling in a perfectly competitive market. This ensures no loss of revenue.

A Company Is Highly Centralized