Economists argue that the optimal transfer price is one that represents:
A) the average cost of the item based on standard costing.
B) the competitive price that would be available without a vertically integrated firm.
C) the optimal monopoly price based on P (1 + 1/E) = MC.
D) the total cost, including coverage of some of the overhead costs.

Question

Quizplus · Accepted Answer

The optimal transfer price is one that reflects the competitive price that would be available in the market if the firm were not vertically integrated. This ensures that the divisions within the firm are dealing with each other as they would with external parties, promoting efficiency and market-based decision making.

Economists Argue That the Optimal Transfer Price Is One That