Externalities between two firms can be "internalized" if:
I.The two firms merge.
II.Bargaining costs are zero.
III.The externalities affect each firm equally.
IV.Marginal costs for both firms are constant.
Which statement(s)correctly complete the sentence?

Question

Quizplus · Accepted Answer

Externalities between two firms can be internalized if the firms merge, allowing them to directly manage the external costs or benefits between them, or if bargaining costs are zero, as per the Coase Theorem, which suggests that if transaction costs are negligible, parties can negotiate to resolve externalities regardless of the initial allocation of rights. The effects of the externalities being equal or marginal costs being constant do not inherently lead to internalization of externalities.

Externalities Between Two Firms Can Be "Internalized" If