The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2

-The existence of externalities in a market implies that:

Question

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2
 
-The existence of externalities in a market implies that:

Quizplus · Accepted Answer

The presence of externalities suggests that the allocation of resources is not reflective of their highest valued use. This is because externalities result in costs or benefits to third parties that are not taken into account by the parties directly involved in the transaction. As a result, there may be welfare gains to be had from reallocating resources to a different use that takes into account these external effects. Options A, B, C, and E do not accurately capture the implications of externalities on resource allocation.

The Table Below Shows the Payoff (Profit) Matrix of Firm