As transaction costs decrease,firm size (the number of employees)should shrink because it becomes easier and cheaper for the firm to contract for the purchase of goods and services in the marketplace rather than to make the product or offer the service itself.

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When transaction costs decrease, firms can easily reduce their size, as they don't need to keep a large workforce to manufacture or provide services. It is cost-effective to outsource production or services to third-party vendors. Thus, smaller firms with lower overhead costs can compete with larger firms, which may have higher transaction costs, resulting in higher prices. As a result, as transaction costs decrease, it is more likely that firm size will shrink.

As Transaction Costs Decrease,firm Size (The Number of Employees)should Shrink