A partnership is Pareto preferred to a proprietorship if

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The productivity gain associated with team production is the only option that makes sense for partnerships being preferred to proprietorships. Increasing returns to scale and weak law of diminishing returns may affect production but do not necessarily impact the choice between a partnership or a proprietorship. The relationship status of the partners being married is irrelevant to the decision-making process.

A Partnership Is Pareto Preferred to a Proprietorship If