Question

4. Discuss the nature of the firm.

Answer 1

Explanation:

The nature of firm is very well known and famous article of Mr Ronald Coase. It explains about not trading with some billateral contract in market with other firms and to have specific type of firm ownership like partnership or proprietorship and decide certain entity for firm. Coase has given this economic theory of firm that not the contract but different type firm should be there in market in order to have lower cost. Transaction cost would emerge as friction in market and making price go high creating firm would reduce this transaction cost by bringing people under one firm. Instead of hiring a designer every time we needed, firm should hire him as this would be affordable and reduce transaction cost in market.