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WEW-038

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Microeconomics Question from Walter E. Williams:Edit

It has been said that exchange makes possible new types ofproductive opportunities as well, through the institution of the firm. Analyze.

AnswerEdit

Because firms are profit maximizing, they will be driven to produce as efficiently as possible, lowering the MC of producing and pushing the production possibilities frontier out. This efficiency allows for expansion and reallocation of resources to better uses. Additionally, exchange makes it possible to have consumption opportunities which differ from productive opportunities. Firms reduce the transactions cost of exchange.

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