To Avoid the Problem of Double Marginalization

question 139

Multiple Choice

To avoid the problem of double marginalization:

• A) transfer prices must be set that maximize the overall value of the firm rather than the profits of the upstream division.
• B) firms should put more emphasis on vertical integration.
• C) firms should engage in two-part pricing.
• D) firms should engage in commodity bundling, unless it is possible to engage in either first- or second-degree price discrimination.

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Definitions:

Mixed Costs

Costs comprising both constant and fluctuating elements, altering in aggregate with activity levels yet not in direct correlation.

Per Unit Basis

Calculations or measurements made by dividing the total by the number of units to find the amount corresponding to a single unit.

Fixed Costs

Expenses that do not change with the level of production or sales, such as rent and salaries.

Activity

An action or task that is part of a process or program, often contributing to achieving a goal or outcome.