If Two Merged Firms Are Shown to Have a Higher

question 12

Multiple Choice

If two merged firms are shown to have a higher combined market value than the sum of the individual market values,then:

• A) economic gains are said to have taken place.
• B) the firms were previously underpriced.
• C) the merger provides diversification to investors.
• D) there is no cost involved in the merger.

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Definitions:

Adverse Selection Problem

A problem arising when information known to one party to a contract or agreement is not known to the other party, causing the latter to incur major costs. Example: Individuals who have the poorest health are most likely to buy health insurance.

Common Good Problem

Common Good Problem occurs when resources that are freely accessible to all members of a society are overused or depleted, often leading to sustainability issues.

Special-Interest Effect

The phenomenon where policy decisions are influenced or shaped by the lobbying efforts of a small, focused group, often at the expense of the general public.

Political Parties

Organizations that seek to attain and maintain political power within a government, typically by participating in electoral campaigns, educational outreach, or protest actions.