Which of the following statements is true of transaction costs?
A) When the costs of pursuing an activity in-house are more than the costs of transacting for that activity in the market, then the concerned firm should vertically integrate.
B) When companies transact in the open market, they incur internal transaction costs.
C) Transaction costs exclusively consist of external costs associated with economic exchanges.
D) Transaction costs are necessary to explain and predict the boundaries of a firm.

Question

Quizplus · Accepted Answer

A theoretical framework in strategic management called transaction cost economics explains and predicts the boundaries of the firm. Transaction costs are all internal and external costs associated with an economic exchange, whether it takes place within the boundaries of a firm or in markets.

Which of the Following Statements Is True of Transaction Costs