Microeconomics Question from Walter E. Williams:Edit

Why is most productive activity carried out by firms rather than by individuals who contract mutually with one another?

AnswerEdit

One of the benefits of a firm is minimization of transaction costs. A firm reduces the costs of production by eliminating some of the costs of negotiating and producing separate contracts for each individual exchange transaction in the market. The number and need for contracts is reduced by the firm but it is not eliminated.

Other Questions:Edit

Next: WEW-063
Previous: WEW-061