Correcting student misconceptions The general guideline yields the minimum TP the seller can accept and be as well off asunder the next best alternative. It is a starting point for negotiations – not a recommended TP. Teaching tips Students should be familiar with the concept of opportunity cost from economics. In the TP context, opportunity cost is the profit the seller forgoes by selling to the sister subunit, rather than externally. Assume the seller has no idle capacity and can sell all they produce at €4. Outlay cost is €1.00. If the seller sells internally, the profit forgone (opportunity cost) is €3 (€4 revenue – €1 outlay cost. Alternatively, if the seller has excess capacity with no alternative use, no profit is forgone by selling internally (opportunity cost is zero.
