Are external entities included in a context diagram?

In a context diagram, external entities are indeed included as they provide inputs to and receive outputs from the system being analyzed. Therefore, stating that external entities are not included, which is implied by the answer selected, is inaccurate.

The context diagram serves to represent the entire system's environment, showcasing how the system interacts with external entities like users, other systems, and organizations that influence or are influenced by the system. Their presence is critical to understanding the system's boundaries, inputs, and outputs, making interactivity with the system a fundamental aspect depicted in this diagram.

Considering the other options: while only showing external entities that interact with the system would narrow the perspective of the system's environment, and focusing solely on stakeholders would exclude important interactions with various external agents, the key takeaway is that a comprehensive context diagram includes all relevant external entities, as their interactions are essential to understanding the system's functionality and its placement in the broader context.