Global Giant, a Multinational Corporation, Has a Producing Subsidiary in a Low

question 54

Multiple Choice

Global Giant, a multinational corporation, has a producing subsidiary in a low tax rate country and a marketing subsidiary in a high tax country.If Global Giant wants to minimize its worldwide tax liability, we would expect Global Giant to

• A)stop producing in the low tax rate country.
• B)stop marketing in the high tax rate country.
• C)establish a low transfer price when the producing unit sells to the marketing unit.
• D)establish a high transfer price when the producing unit sells to the marketing unit.
• E)be indifferent as to its transfer pricing policy.

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Definitions:

Firm

A business organization, such as a corporation or partnership, that sells goods or services in exchange for revenue.

Variable Costs

Costs that vary directly with the level of output or production, such as materials and labor costs.

Industry Short-run

A period in which at least one of a firm's inputs is fixed, limiting the firm's ability to adjust fully to market changes.

Marginal Cost

The financial addition incurred by manufacturing one more unit of a product or service.