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:

Nontaxable Bids

Offers made for financial securities that are exempt from taxes.

Goodwill

An intangible asset that arises when a company acquires another company for a price higher than the fair market value of its net tangible assets.

Impairment Test

An accounting procedure used to determine if an asset's carrying value exceeds its recoverable amount, indicating if the asset is impaired and the loss that needs to be recognized.

Junk Bond Market

A segment of the financial market that deals with high-risk, high-yield bonds issued by corporations with lower credit ratings.