(Appendix 12A)Using the Formula in the Text, If the Lowest

question 2

Multiple Choice

(Appendix 12A) Using the formula in the text, if the lowest acceptable transfer price from the viewpoint of the selling division is $90 and the opportunity cost per unit on outside sales is $40, then the variable cost per unit must be:

• A)$90
• B)$40
• C)$130
• D)$50

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Definitions:

Allocative Efficiency

A state of resource allocation where it is impossible to make any one individual better off without making at least one individual worse off, typically achieved when the economy effectively allocates resources to where they are most valued.

Productive Efficiency

A scenario where goods or services are produced at the lowest possible cost, often involving optimal utilization of resources.

X-inefficiency

The difference between efficient behaviors of businesses in a competitive market and their actual behaviors due to lack of competitive pressure.

Decreasing-cost Industry

An industry in which the costs of production decrease as the industry grows and output increases.