The Acme Oil Company is a vertically integrated firm. It explores for and extracts crude oil. It also refines the crude oil into gasoline and other products, and sells these products to consumers. There are many other firms that extract and sell crude oil so that the market for crude oil is regarded by Acme Oil as competitive. The internal price that Acme Oil uses when the crude oil that it extracts is "sold" to one of its refineries:

A) equals the market price for crude oil.
B) equals the market price for crude oil less a discount because Acme Oil does not to profit from itself.
C) is unrelated to the market price of crude oil.
D) is greater than the marginal cost of extracting crude oil.

Question

joanna bontigao · Accepted Answer

Final Answer : A, Explanation :  The internal price used by Acme Oil for transactions between its extraction and refining operations would equal the market price for crude oil. This approach ensures that the company's internal transactions reflect the external market conditions, allowing for more accurate financial and operational analysis.

Definitions

Learning Objectives

Learning Objectives

Related questions