Question 1
Vertically integrated firms can use transfer pricing
◦ to avoid government price controls.
◦ as a way to compensate managers for transferring among departments in a vertically integrated firm.
◦ to avoid paying market prices for inputs.
◦ to shift profit.
Question 2
According to economists, competitive firms
◦ compete for the same customers.
◦ are price takers.
◦ differentiate their products.
◦ are able to change output and affect the market price.