Consider a firm with an upstream division producing chips, and downstream division producing computers. Initially, at time 1, there is no outside market for the firm's chips. The firm sets the transfer price optimally at PT=300. This results in production of 400 computers. Later, at time 2, an outside market develops for the firm's chips. The market is willing to pay 600 for the firm's chips. Suppose the transfer price is set optimally at time 2. The firm's downstream division will end up producing fewer computers.
Could you please identify whether it is true, false and uncertain and explain please.