What Is the "Floor" in Transfer Pricing

question 40

Multiple Choice

What is the "floor" in transfer pricing?

• A)the transfer price that would leave the buying division no worse off if an input is purchased from an internal division
• B)the transfer price that would leave the selling division no worse off if a good is sold to an internal division
• C)the transfer price that would leave the buying division worse off if an input is purchased from an internal division
• D)the transfer price that would leave the selling division worse off if a good is purchased from an outside supplier

---

Definitions:

Utility-maximizing

A principle in economics where consumers aim to get the greatest satisfaction from their spending, given their budget constraint.

Goods

Tangible items that are produced and are capable of being physically delivered to a consumer.

Px(MUx)

This expression denotes the price of a good (Px) multiplied by its marginal utility (MUx), commonly used in economic analysis of consumer choice.

MUx/MUy

Represents the marginal utility of good x relative to the marginal utility of good y, often used in consumer choice theory to analyze optimum consumption points.