Where there is no external market for a transfer product, the profit maximizing condition for a transfer product firm is: A) MR_F = MC_F - MC_T B) MR_F = MC_F + MC_T C) MR_A + MR_B = SMC. D) MR_A - MR_B = SMC. E) MR_F = MC_F = MC_T

Question

Quizplus · Accepted Answer

The profit maximizing condition for a transfer product firm, where there is no external market, involves setting the marginal rate of substitution (MRS) equal to the sum of the marginal cost of service in the buying division (MCS) and the marginal cost of transfer (MCT). This ensures that the internal transfer price reflects the true cost of producing and transferring the product within the firm.

Where There Is No External Market for a Transfer Product