If a firm has a monopoly in both the production and distribution of a product and the managers of both the production and distribution divisions maximize profits, all of the following are true except which one?
A)A successive monopoly will occur within the firm.
B)Double marginalization will occur within the firm.
C)The firm will maximize its total profit.
D)The firm will not earn the maximum total profit.

Question

Quizplus · Accepted Answer

Double marginalization refers to a situation where both the production and distribution divisions of a firm set their own profit-maximizing prices independently. This leads to higher prices and lower quantities sold than if the firm maximized profits as a single entity, thus not achieving maximum total profit. Therefore, the statement that the firm will maximize its total profit is incorrect in the context of double marginalization.

If a Firm Has a Monopoly in Both the Production