If Each Division of a Company with a Monopoly Niche

question 21

Multiple Choice

If each division of a company with a monopoly niche is allowed to set its transfer price at the profit-maximizing level for the next division as the product flows toward the consumer (assuming no external market for the product) ,then prices will:

• A)be higher and profits lower than with non-divisional organization.
• B)be lower and profits higher than with a non-divisional organization.
• C)be the same and profits will be the same as with a non-divisional organization.
• D)match the competitive benchmark and profits will be zero.

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Definitions:

Procedural Justice

The fairness and transparency of the processes used by organizations to make decisions, particularly in terms of how these processes affect the treatment of individuals within the organization.

Psychological Contract

The unwritten, implicit agreements and expectations between an employer and employee regarding their mutual obligations.

Distributive Justice

The perceived fairness in the allocation of resources and burdens among members of a society.

Exit Incentives

Benefits offered to employees to encourage voluntary resignation or retirement, often used in downsizing or restructuring initiatives.