How does the authority originate in a formal organisation?

By virtue of an individual’s position

The correct answer is option 1- By virtue of an individual’s position.

Authority refers to the right of an individual to command his subordinates and to take action within the scope of his position. The concept of authority arises from the established scalar chain which links the various job positions and levels of an organisation. In the formal organisation authority originates by virtue of an individual’s position and the extent of authority is highest at the top management levels and reduces successively as we go down the corporate ladder.