The business activities of Firm A confer positive externalities on Firm B, and the business activities of Firm B confer positive externalities on Firm A. If the two firms merged, then
A)their respective markets would move closer to the social optimum.
B)their respective markets would move further away from the social optimum.
C)total surplus in their respective markets would decrease.
D)the merger would serve as an example of a misguided public policy toward externalities.

Question

Quizplus · Accepted Answer

Since the firms confer positive externalities on each other, their merger would lead to greater coordination and communication between the two firms, resulting in a more efficient allocation of resources and a movement closer to the social optimum.

The Business Activities of Firm a Confer Positive Externalities on Firm