Which of the Following Is a Disadvantage of Dual Pricing

question 8

Multiple Choice

Which of the following is a disadvantage of dual pricing?

• A) It strongly preserves the autonomy of divisions, and the division managers are motivated to put forth effort to increase the operating income of their respective divisions, causing inefficiencies.
• B) The price arrived by using dual pricing has no specific relationship to either costs or the market price.
• C) It insulates managers from the realities of the marketplace because costs, not market prices, affect the revenues of the supplying division.
• D) It assumes that the minimum transfer price equals the incremental cost per unit incurred up to the point of transfer minus the opportunity cost per unit to the selling division.

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Definitions:

ATC

Average Total Cost, which is the total cost divided by the quantity of output produced.

MR

Marginal Revenue is the additional income from selling one more unit of a good; sometimes equal to price.

Short-Run Equilibrium

A situation in which the quantity supplied and quantity demanded in a market are equal at a particular price level, but only for a temporary period.

Monopolistically Competitive

A market structure where many companies sell products that are similar but not identical, allowing for competition based on product differentiation.