The choice of producing within firms or across markets
A)is based on the magnitude of production costs only.
B)is based on the magnitude of transaction costs only.
C)depends to a large degree on the size of the firm.
D)will depend on the relative costs of the two options.

Question

Quizplus · Accepted Answer

The choice of producing within firms or across markets depends on the relative costs of the two options. If the costs of producing within a firm (such as hiring employees, investing in equipment, etc.) are lower than the costs of producing across markets (such as finding suppliers, negotiating contracts, etc.), then it makes sense to produce within a firm. On the other hand, if the costs of producing across markets are lower than the costs of producing within a firm, then it makes sense to produce across markets. Ultimately, the best choice will depend on the specific circumstances of the situation.

The Choice of Producing Within Firms or Across Markets