A company has two divisionsan upstream division that makes an intermediate product and a downstream division that uses the intermediate product as an input in the production of the firm's final product. If there is no outside market for the intermediate product, what transfer price for the intermediate product will maximize the company's overall profit? A. The transfer price should be set below the marginal cost of producing the intermediate product in order to give the downstream division a cost advantage when producing the final product.
B. The transfer price should be set to maximize the upstream division's profit. Then, when the downstream division buys the intermediate product and maximizes its profit, the company's overall profit will be maximized.
C. The transfer price should be set equal to the marginal cost of producing the intermediate product.
D. The transfer price is not important since it is just an internal price. The only effect the transfer price has is to divide the company's profits between the two divisions. The overall profit earned by the company is not affected.