# you for support in advance can you solve this problem you! Suppose that a paper mill “feeds” a downstream box mill. For the downstream mill, the marginal proﬁtability of producing

you for support in advance can you solve this problem you! Suppose that a paper mill “feeds” a downstream box mill. For the downstream mill, the marginal proﬁtability of producing boxes declines with volume.

For example, the ﬁrst unit of boxes increases earnings by $30. the second bv $21 the third by $24, and so on. until the tenth unit increases proﬁt by

just $3. The cost the upstream mill incurs for producing enough paper (one “unit" of paper) to make one unit of boxes is $9.50. Assume the two mills operate as separate proﬁt centersr 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.r the paper division for boxes" Furthermore, aesume ﬂiat ﬁxed costs are $0 for the paper mill. The following table summarizes the quantity. total revenue. and marginal costs from the perspeclive of the paper mill for selling paper to the box mill at various prices. in the following table, fill 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 Marginal

Price Quantity Revenue Marginal revenue Total Cost Cost Proﬁt

(Marginal

Proﬁtability t0 the ("HHS Of Paper

3"" "’ll) equivalent to One

{5′} BOX) {5′} {5′} {5′} {5′}

$30 1 $30 — $9.50

$ $9.50

$24 2 $44

$ $9.50

$24 3 $42

$ $9.50

$44 4 $44

$ $9.50

418 4 $44

$ $9.50

415 4 $44

$ $9.50

$44 4 $44 $

44 4 $42 $ “$44 _

$4 4 444 “we”

$ $9.50

$3 10 $30 5

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