Chapter 14 Outline - Chapter14Outline 02:19...

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Chapter 14 Outline 02:19 Transaction Costs, Imperfect Information, and Behavioral Economics 14-1 Rationale for the Firm and its Scope of Operation A. The Firm Reduces Transaction Costs o Organizing activities through the hierarchy of the firm is usually  more efficient than market exchange because production requires  the coordination of many transactions among many resource  suppliers o Using resource markets directly involves The cost of determining what inputs are needed and how  they should be combined The cost of reaching an agreement with each resource  supplier over and above the direct costs of the resources and  labor required The more complicated the task, the greater the ability to economize on transaction  cost through specialization and centralized control B. The boundaries of the Firm o Vertical integration is the expansion of a firm into stages of 
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