Coase argued that the existence of the firm, as an alternative to market transactions, can be attributed to ______.
A) high market transaction costs
B) the benefits of a unified organizational cultural
C) economies of scale
D) economies of scope

Question

Quizplus · Accepted Answer

Coase argued that the existence of the firm can be attributed to high transaction costs in the market. The cost of using the price mechanism (i.e. the market) to coordinate production and exchange can be high due to transaction costs such as search and information costs, bargaining costs, and enforcement costs. The firm provides an alternative to the market by internalizing production and exchange activities and avoiding some of these transaction costs. Economies of scale and scope may also be factors that make the firm more efficient than the market, but high transaction costs are the fundamental reason for the existence of the firm, according to Coase. The benefits of a unified organizational culture are not directly related to the existence of the firm.

Coase Argued That the Existence of the Firm, as an Alternative