Final answer:
The correct answer is A) Market-based transfer price, which aligns with competitive market principles, ensuring prices are set equal to marginal cost and fostering resource efficiency.
Step-by-step explanation:
Market-based transfer pricing uses the external market price as a basis for internal transactions between divisions within a corporation.
This approach aligns with the competitive market's requirement that the price be set equal to marginal cost, promoting an efficient allocation of resources, where the value to the consumers of the last unit bought and sold is equal to the marginal cost of producing it.
Additionally, the market-based transfer price is the market price of an item in an uncontrolled market. It should be used only when market prices are available for the goods or services being transferred.
It helps in assuring higher quantity and lower price than in a monopolistic setup and retains neutrality as it does not overwhelmingly favors the producer or the consumer.