Business, 02.06.2020 11:57, oakleylynn

An external competitor to Construction (from another island) is offering to build the new homes for $1300 each. Here are facts about the each of the projects (incline, bridge, campground, new home) Construction is considering:

Revenue Variable Cost Incline $1,400 $600
Bridge $1,500 $950
Campground $2,700 $1,200
New Home ? $700

Island Evaluations only wants to hire one company to build all five homes. In other words, either Construction (internal) will build all five, or the competitor (from another island) will build all five new homes. Island Evaluations plans on selling the homes to new tenants for $2,500 each.

a) What is the minimum transfer price (per home) that Construction would be willing to accept?
b) What is the maximum transfer price (per home) Island Evaluations would be willing to accept?

Answers: 2

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An external competitor to Construction (from another island) is offering to build the new homes for...