If the external market for an intermediate product is imperfectly competitive, then the transfer price should be set equal to
A) the market price of the intermediate product.
B) the marginal cost of producing the optimal quantity of the intermediate product.
C) the market price of the final product.
D) None of the above is correct.

Question

Quizplus · Accepted Answer

In an imperfectly competitive market, the transfer price should reflect the marginal cost of producing the intermediate product to ensure efficient resource allocation within the firm.

If the External Market for an Intermediate Product Is Imperfectly