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Sir in case of transfer pricing if there is unlimited production capacity/resources and limited external demand then the Min. transfer price would be greater than MC and Max transfer price would be less than NMR, right?
If there is limited production capacity/resources and unlimited external demand then the Min. transfer price would be MC + lost contribuion and Max transfer price would be lower of NMR and external purchase cost right?
Can it happens that there is unlimited production capacity/resources and unlimited external demand ? If yes then what would be max and min transfer price in this case?
Can it happen that there is limited production capacity/resources and limited external demand? If yes then what would be max and min transfer price in this case?
1. Minimumum correct, maximum depends on whether there is a lower external purchase price.
2. Yes
3. Minimum is marginal cost; maximum is lower of NMR and any external purchase price.
4. Minimum is marginal cost plus any lost contribution; maximum is lower of NMR and any external purchase price.
All of this is explained in the lectures and is application of the standard rules!
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