The scope of which activities a firm chooses to conduct is largely a matter of transaction costs versus administrative costs.

Question

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Transaction costs refer to the costs involved in coordinating and conducting transactions with external parties, such as suppliers, customers, and partners. Administrative costs refer to the costs involved in managing and coordinating activities within the firm. The balance between these two costs will determine which activities a firm chooses to conduct internally versus outsourcing to external parties.

The Scope of Which Activities a Firm Chooses to Conduct