To circumvent the problem of double marginalization:
A. transfer prices must be set that maximize the overall value of the firm rather than the profits of the upstream division.
B. firms should vertically integrate.
C. firms should engage in two-part pricing, unless it is possible to engage in either first-or second-degree price discrimination.
D. None of the answers are correct.
Answer: A
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A. lower; potential B. higher; potential C. higher; higher D. lower; higher
Refer to Figure 10.1. If three lights are installed, the people who were responsible for the light being installed each receive a payoff of
A) 4. B) 6. C) 8. D) 10.
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