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

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the transfer price for an intermediate product should be set equal to the competitive market price of that product. This ensures that the internal transactions are aligned with the external market conditions, providing a fair and efficient pricing mechanism for the intermediate product.

If the External Market for an Intermediate Product Is Perfectly