Final answer:
The preferred allocation approach when the standalone selling price isn't available is the relative standalone selling price method. This method allocates the transaction price based on estimated standalone prices of each deliverable. It references efficiencies in perfectly competitive markets, such as productive and allocative efficiency.
Step-by-step explanation:
The best measure of fair value for goods or services is the standalone selling price, which is the price at which a company could sell the goods or services separately. If this information is not directly available, companies are advised to use their best estimate of what the good or service would sell for as an individual unit. In such cases, the preferred allocation approach is the relative standalone selling price method. This method involves estimating the standalone selling prices of each deliverable in a contract and allocating the total transaction price in proportion to those estimated standalone selling prices.
When suppliers decide how much to offer for sale at various prices, they must consider costs like fixed cost, marginal cost, average total cost, and average variable cost. These costs provide insight into the production and pricing strategy of a firm. In a perfectly competitive market, the long-run equilibrium will theoretically feature both productive and allocative efficiency, meeting the condition where price equals marginal cost and average total costs are minimized. However, this ideal scenario is often not perfectly met in the real world.