Consider a Monopolist That Is Able to Distinguish Between Two

question 8

Multiple Choice

Consider a monopolist that is able to distinguish between two distinct market segments, A and B, for its product. Marginal cost is constant at $100 for each unit produced. The firm is currently selling its output at a single price and allocating its output across segments such that marginal revenue in segment A is $85 and marginal revenue in segment B is $105. Is this firm maximizing its profit?

• A) Yes, because it has set a price such that MC is between the MRs of the two market segments.
• B) No, because it is only possible to equate MR and MC when there is a single MR curve.
• C) No, this firm can increase its profits by price discriminating across the two market segments.
• D) Yes, because since marginal cost is constant, the firm must set a single price.

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Definitions:

Centralization

The concentration of decision-making authority at the upper levels of an organization or system.

Decentralization

Refers to distributing the decision-making powers and leadership roles away from a central authority to more local or individual levels within an organization.

Authority

A capability to prescribe actions, make choices, and insist on obedience.

Organizational Design Decisions

Pertain to the process of shaping an organization's structure and roles to align with business goals, strategies, and processes.