The Coase theorem
A)shows that under certain conditions the market can internalize externalities.
B)states that economic units should specialize in the production of those goods in which they have a comparative advantage.
C)asserts that the firm should produce that output at which marginal cost is equal to marginal revenue.
D)holds that the firm should produce that output at which marginal factor cost is equal to marginal revenue product.

Question

Quizplus · Accepted Answer

The Coase theorem demonstrates that if trade in an externality is possible and there are no transaction costs, parties can negotiate privately to resolve the externality problem, effectively internalizing the externality.

The Coase Theorem