The Importance and Widespread Use of Transfer Pricing in International

question 42

True/False

The importance and widespread use of transfer pricing in international trade makes capital budgeting in MNCs very difficult unless the transfer prices used accurately reflect actual costs and incremental cash flows.

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Definitions:

Long-Run Equilibrium

A state in which all factors of production and costs are variable, and firms in a competitive market have no incentive to enter or exit because they are earning normal profit.

Monopolistically Competitive Industry

An industry characterized by many firms offering products that are similar but not perfect substitutes, allowing for some degree of market power.

Monopolistic Competition

A market structure in which many companies sell products that are similar but not identical, allowing for competition among firms.

Demand Curve

A chart that illustrates the correlation between a product's price and the amount consumers want to buy.