Concrete Corporation Has Two Producing Centers, Contractor and Retailer

Concrete Corporation has two producing centers, Contractor and Retailer. The Contractor Division has a variable cost of $12 for its products and a total fixed cost of $120,000. The Contractor Division also has idle capacity for up to 50,000 units per month. The Retailer Division would like to purchase 20,000 units of the Contractor Division's products per month but is unable to convince the Contractor Division to transfer units to the Retailer Division at $16 per unit. The Contractor Division has consistently argued that the market price of $20 is nonnegotiable. What is The Contractor Division's opportunity cost of not transferring units to the Retailer Division?

A) $20.
B) $12.
C) $8.
D) $4.

Correct Answer:

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