Sporto Auto Company manufacturers each of the aluminum engines used in their cars, and there is no outside market for these engines. Suppose the marginal cost of producing the aluminum engines is constant at all quantities.
What happens to the optimal transfer price and the quantity of cars produced if the cost of assembly increases? A) Price and quantity increase
B) Price and quantity remain the same
C) Price and quantity decrease
D) Price remains the same and quantity decreases
Question 2
A small decrease in a production quota will have a large impact on the support price if:
A) demand is completely elastic.
B) demand is highly (but not completely) elastic.
C) demand is inelastic.
D) The demand elasticity does not affect the price outcomes of a quota program.
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