Multiple Choice
Which of the following is true of public solutions to externalities?
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7. Externalities
Public Solutions to Externalities
Multiple Choice
Why might a firm create a joint venture when entering a new geographic market?
A
To share risks and resources with a local partner, reducing the impact of market uncertainties and potential externalities.
B
To avoid complying with local regulations and environmental standards.
C
To ensure complete control over all business operations without any outside influence.
D
To eliminate all competition in the new market immediately.
Verified step by step guidance1
Understand the concept of a joint venture: it is a business arrangement where two or more parties agree to pool their resources for a specific task, such as entering a new geographic market.
Recognize that entering a new market involves uncertainties and risks, such as unfamiliar regulations, cultural differences, and market demand fluctuations.
Identify that partnering with a local firm through a joint venture allows the foreign firm to share these risks and leverage the local partner's knowledge, resources, and networks.
Note that this collaboration can reduce the impact of market uncertainties and externalities by combining strengths and sharing costs.
Conclude that the primary motivation for creating a joint venture in this context is risk-sharing and resource pooling, rather than avoiding regulations, gaining full control, or eliminating competition.
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