Transfer Prices in an Imperfect Market Division A is the supplier division and Divisions B and C are the consumer divisions of a large company. After Division B deducts its own processing costs, the total net revenue and the marginal net revenue it derives from various quantities of intermediate product are:

DIVISION B QUANTITY OF INTERMEDIATE TOTAL NET MARGINAL PROCESSED, IN POUNDS REVENUE NET REVENUE 1,000 $ 600 $600 2,000 900 300 3,000 1,100 200 4,000 1,200 100 Similarly, for Division C we have:
DIVISION C QUANTITY OF INTERMEDIATE TOTAL NET MARGINAL PROCESSED, IN POUNDS REVENUE NET REVENUE 2,000 $1,200 $—
3,000 1,800 600 4,000 2,100 300 5,000 2,300 200 6,000 2,400 100 Division A, the producing division, faces the following cost conditions:
DIVISION A QUANTITY OF INTERMEDIATE TOTAL MARGINAL PRODUCED, IN POUNDS COST COST 4,000 $2,000 $—
5,000 2,100 100 6,000 2200 150 7,000 2,425 WAS)
8,000 2,625 200 9,000 2,925 300 10,000 33325 400 What transfer price should be set for A’s output? Why? lop1