The Pillar Division of the Gothic Building Company produces basic pillars which can be sold to outside customers or sold to the Lantern Division of the Gothic Company. Last year, the Lantern Division bought all of its 25,000 pillars from Pillar at $2.50 each. The following data are available for last year's activities of the Pillar Division:

Capacity in units		370,000	pillars
Selling price per pillar to outside customers	$	2.60
Variable costs per pillar	$	1.65
Fixed costs, total	$	205,000

The total fixed costs would be the same for all the alternatives considered below. Suppose the transfers of pillars to the Lantern Division cut into sales to outside customers by 20,000 units. What is the lowest transfer price that would not reduce the profits of the Pillar Division?

$1.65.

$2.60.

$2.41.

$3.45.