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- Title
Transfer Pricing with Technology Choice and Demand Fluctuations in a Simple Manufacturing Model.
- Authors
Aranoff, Gerald
- Abstract
This paper shows optimal (marginal-cost) transfer pricing with technology choice (K/L) and demand fluctuations (off-peak/peak) in a simple manufacturing model. Technology[sub K]. is making major components or use of new or capital-intensive technology. Technology[sub L] is buying major components or use of old or labor-intensive technology. We demonstrate graphically, mathematically, and numerically that with technology[sub K], available to the manufacturing division to provide the excess of peak over off-peak demand, then the optimal transfer price in t[sub 2] is .far lower than if only technology[sub K] were available. This should make marginal-cost peak-load transfer pricing more tolerable to corporation managers. Further, not only P[sub 2] becomes lower, but Q[sub 2] becomes higher. The firm is producing more than if only technology[sub K] were available (under negatively-sloped-demand schedules facing the firm). This has macroeconomic implications in aiding economic growth and increasing the sustainability of economic upturns.
- Subjects
TRANSFER pricing; MANUFACTURED products; PRODUCTION standards
- Publication
Quarterly Journal of Business & Economics, 2000, Vol 39, Issue 2, p3
- ISSN
0747-5535
- Publication type
Article