Refer to the information in Exercise 18.17. Suppose that the Mining Division is not required to transfer its yearly output of 400 000 units of toldine to the Metals Division.
1. From the standpoint of Escuelas, SA, as a whole, what quantity of toldine should the Mining Division transfer to the Metals Division?
2. Now suppose each division manager acts autonomously to maximise the division’s operating profit. What range of transfer prices will result in managers of the Metals and Mining Divisions achieving the actions determined to be optimal in requirement 1? Explain your answer.
3. Would you recommend that Escuelas allow the divisions to buy and sell toldine in the open market, and to negotiate the transfer price between themselves? Explain your answer.