Economic activity can be coordinated by markets or by individual firms.
Market coordination
Assemble a final products by outsourcing, i.e. purchasing vaious components from firms specializing in product them.
Firm coordination
A firm organizes input production factors to produce and market goods. Firms can coordinate activity more efficiently than market due to:
· Economies of scope
· Economies of scale
· Team production (lower production costs)
· Transaction costs
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