Where there is a perfectly competitive external market for a transfer product, the profit-maximizing condition for the transfer product division is met at MR_T = P_T = MC_T.

Question

Quizplus · Accepted Answer

This is the profit-maximizing condition in a perfectly competitive market for a transfer product, where MRS (marginal rate of substitution) between the upstream division and downstream division is equal to the price of the transfer product (PS) and the marginal cost of producing the transfer product (MC).

Where There Is a Perfectly Competitive External Market for a Transfer