A U.S.-based multinational has two subsidiaries, one in Lithuania ...

[dollx]

A U.S.-based multinational has two subsidiaries, one in Lithuania where the tax rate is 15, and one in Ireland where the tax rate is 2. The tax rate in the U.S. is 35.
 
  If the Lithuanian-based subsidiary is transferring a good to the Irish subsidiary and the goal is to avoid taxes, it will A) sell it to the U.S. parent at a transfer price equal to marginal cost, which will then sell it to the Irish subsidiary at monopoly level pricing.
  B) set the transfer price to the Irish subsidiary at the monopoly level.
  C) set the transfer price to the Irish subsidiary at marginal cost.
  D) Unable to determine with the information given.

Question 2

If the shut-down rule, p < AVC, is the same in the short run and the long run, explain why the shut-down prices may be different.
 
  What will be an ideal response?

[ecox1012]

Answer to Question 1

C

Answer to Question 2

In the long run all costs are variable. In the long run, the average variable cost is usually higher than in the short run.

[dollx]

Correct answers!

[ecox1012]

Great! Please up vote