Final answer:
Negotiated transfer pricing in a perfectly competitive market can lead to internal efficiency and better performance due to the increased autonomy and incentive for individual business unit managers.
Step-by-step explanation:
Advantages of negotiated transfer prices in a perfectly competitive market include the flexibility and ability for divisions within the same organization to find a mutually beneficial price, which could lead to more efficient internal operations and better resource allocation.
also helps to improve autonomy of individual business units and may motivate managers within these units to perform better as they can negotiate terms that directly benefit their unit's profitability while aligning with organizational goals.
In a perfectly competitive market, firms are considered to be "price takers" because there are many sellers and products are identical; firms must accept the market equilibrium price. If a firm in such a market tries to raise its price even by a cent, customers would immediately turn to competitors, leading to a loss of sales for that firm.
Thus, no firm can independently adjust prices to seek higher profits.