Explain Ronald Coase's theory of the firm.
My central idea concerning the firm is that its existence is a consequence of the costs associated with using the market mechanism. When the costs of using the price mechanism – what I came to call transaction costs – are higher than the costs of internal coordination within a firm, entrepreneurs will choose to organize production internally. The firm emerges as a way to minimize these transaction costs and economize on the costs of using the market for certain activities.
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