The Business Activities of Firm a Confer Positive Externalities on Firm

question 378

Multiple Choice

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.

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Definitions:

Revenue Recognition Principle

An accounting principle that dictates the specific conditions under which revenue is recognized or accounted for.

Recognized

Officially identified or acknowledged, typically referring to the formal acceptance of financial transactions within accounting records.

Statement

A record or document summarizing financial transactions over a specified time period.

Accrued Expenses

Expenses that have been incurred but not yet paid or recorded in the accounts, representing liabilities for goods or services received.