In a firm there is a manufacturing division and a retail division. The manufacturing division builds television sets and the retail division sells them to the public. The marginal cost of production for each television produced of $4 per unit. The retail division has zero costs of production. Consumer demand is given by ½q = 20 - P, where P is price and q is the quantity demanded.

1. What is the optimal price and quantity sold by the firm?

2. Now consider the case when the managers of each division are rewarded on division profits. What will be transfer price for a television between the divisions (t), the quantity sold (q) and the price consumers face (P)