Holmstrom and Tirole Note "The Economist's First Instinct Is to Set

question 13

Multiple Choice

Holmstrom and Tirole note "The economist's first instinct is to set transfer price equal to marginal cost." However,a distinct plurality of companies uses the full-cost method.That is because:

• A)most companies do not employ economists.
• B)it is simple and has a low cost of implementation.
• C)it is identical to using a marginal cost approach to transfer prices.
• D)the results are much better in the field with full-cost method.

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Definitions:

Root Crop

Edible plants that grow underground such as potatoes, carrots, and beets, often rich in carbohydrates and nutrients.

Corn

A cereal plant that yields large kernels on a cob, widely grown for food and livestock feed.

Natural Selection

The evolutionary process where organisms better adapted to their environment tend to survive and reproduce more successfully than less well-adapted organisms.

Predation

The biological interaction where one organism, the predator, kills and consumes another organism, its prey, as a food source.