A Vertically Integrated Firm Produces Both a Specialized Computer Chip

Multiple Choice

A vertically integrated firm produces both a specialized computer chip and the consumer toy that uses this chip. No external market exists for the computer chip. The management teams of both divisions receive bonuses that are dependent on the internal profits generated within their respective divisions. The toy division prefers a ____ transfer price, while the computer chip division prefers a ____ transfer price.

A) low, low
B) low, high
C) high, low
D) high, high